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In most law departments, reducing outside counsel fees basically boils down to cutting litigation fees. Litigation fees typically account for about three-quarters of what law departments spend on law firms. There are four reliable methods for trimming spending on litigation: unbundling discovery activities, sending legal work offshore, getting competitive bids on groups of cases, and using phased budgets. Here’s how each of these techniques work. Unbundling discovery activities. The traditional model of litigation management gives law firms responsibility for handling the bulk of litigation-related activities. A more progressive model, one that seeks lower costs yet comparable quality, unbundles litigation into separate tasks that can be parceled out to service providers other than law firms. For example, the detailed, costly work of photocopying thousands of documents can be handed over to a company that specializes in imaging. Reviewing medical records can be separated from purely legal analysis and placed in the hands of a boutique that offers this specialized service. Research, a cash cow at many law firms, can be outsourced to firms that offer quality research at lower costs. Development and maintenance of an extranet can be assigned to a legal technology consulting group. Additionally, when a major firm is handling a lawsuit, or a family of lawsuits, that firm can unbundle some tasks in favor of less expensive, local counsel. General counsel will find that managing multiple contributors is more complicated than just working with a single firm. But unbundling will help corporate law departments increase quality, decrease costs, and manage litigation more successfully. Sending legal work abroad. The practice of using lawyers in low-cost foreign countries has gotten some publicity recently. Hiring local counsel overseas is nothing new. But having them handle U.S. legal matters certainly is. India has been touted in the news as a destination for offshore legal work, especially litigation support. General Electric Company uses Indian lawyers to prepare contracts ["Taming the Beast," March]. A Chicago-based company, Mindcrest Inc., helps law firms and law departments in the U.S. locate legal service providers in India. The attraction of using offshore resources � to review voluminous discovery materials, to prepare first drafts of responses to interrogatories, or to do preliminary privilege reviews � will continue to grow. A November 2002 study by Cambridge, Massachusetts-based Forrester Research predicted that by 2005, some 15,000 U.S. legal jobs will have moved to such low-wage countries as India, Mexico, and the Philippines. The idea of using legal personnel in these countries isn’t limited to litigation, either. The cost and time savings of having work done while lawyers in the U.S. sleep can be applied to any legal commodity work. One can easily envision this “overseas change” upsetting the familiar economics of large-scale litigation. Bidding groups of cases competitively. If a general counsel can reasonably anticipate his company getting hit with a dozen or more similar cases in the next 18 to 24 months, and if he projects spending more than several hundred thousand dollars on these cases, then he should consider soliciting bids from several firms. For example, American Savings Bank, a thrift formerly based in Irvine, California, bid out its large portfolio of bankruptcy cases. ASB, which has since been acquired by Washington Mutual, Inc., projected that it would save about 15 percent through competitive bidding. The key to the bidding process is that the firm represents the company in the entire batch of cases for a fixed fee. Here’s how to do it. A law department should pick four or five firms it knows have the skills and bench strength to handle the anticipated portfolio of lawsuits. Then it should send the firms a request for proposal, explaining as much as the law department reasonably can about the case histories (with the exception, of course, of what it has spent on them) and what the law department sees ahead. In-house attorneys should reconstruct the number of hours their current (or former) firms devoted to similar cases in the past. Also, they should describe the basic allegations, venue, typical legal issues, status of document discovery, and other facts that acquaint the firms with the projected caseload. They should also arrange for a conference call or other methods of permitting the firms to conduct due diligence, and be sure to send all the information and answers to all the bidders. With the department reliably paying part of the total fee every month, the law firm can turn its attention to delivering its services on some basis other than hourly billing, and look to achieve its goals most cost-effectively. This arrangement often turns up new ideas on how best to manage litigation. After all the firms have submitted bids for handling the portfolio of cases, the law department should inform them of the range of bids. This second-step bid will allow the high and low bidders to think twice about their cost assumptions. The law department can address the assumptions made by the firms so that the firms gain confidence in the accuracy of their bids. The fewer assumptions that firms have to make, the better the bidding process. Eventually, the law department will choose the best arrangement and negotiate a contract. During the period of the fixed fee, it should pay the firm a pro-rata portion of the fee at the start of each month and continue to receive bills in the usual way. In my experience consulting with four companies that bid portfolios of cases competitively, the savings pocketed ranged from 10 percent to 15 percent of fees under the old system. Law departments should set up some benchmark metrics to help keep spending on track and performance up to snuff. Even given the best bidding process and the fullest disclosure on both sides, the final outcome may stray too far in favor of the buyer or the seller. For this reason, it’s useful to have “collars” above and below the fixed fee. For instance, if the actual hours and costs were 11 percent (or more) below the accepted bid, the two sides might agree to split the amount saved by the firm. If the work went more than 10 percent over the accepted bid, the department would pay 50 percent of this “overage.” Using phased budgets. The fourth technique for managing litigation costs relies on phased budgets. These have three distinguishing characteristics. First, they cover reasonably foreseeable periods of time, such as six months. Second, an inside lawyer studies the firm’s budgeted tasks and staffing and approves or modifies them. Phased budgets help contain costs, at least in part, by prompting the inside lawyer and the firm’s partner to talk in detail about methods, timing, emphasis, staffing, and other expenses. Third, if the law firm exceeds the mutually approved budget for a given phase, the law firm absorbs all or most of the excess. All three characteristics must be in place, and all must have some teeth. By most accounts, holding the line on budget-busting is the hardest step. For this reason, it helps if the law firm is handling several cases under this budget regimen. Then the form of the budget can be simple and the review can be straightforward. These four techniques are not magic. They will not instantly make litigation bills shrink. But they help. Even more, this quartet of techniques challenges the prevailing orthodoxies of litigation management: Hire a big U.S. firm to do everything on a per-case basis, using hourly billing rates and bills submitted periodically. No one claims that these are foolproof. But they do work.
Rees Morrison has been consulting with law departments for 15 years. A former practicing lawyer and the author of six books, he is a director of Hildebrandt International, based in Somerset, New Jersey. A version of this story originally appeared in The National Law Journal, a sibling publication of Corporate Counsel.

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