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A primary duty of most in-house counsel is managing the work that is performed by outside counsel. Much attention is devoted to controlling the fees and expenses in legal bills. Electronic billing systems have been widely adopted by in-house counsel to monitor spending, track budgets, and enforce client billing guidelines. When major projects are completed, however, in-house counsel often miss even greater opportunities for savings. They don’t take the time to analyze the outcome, including settlements, awards, and other amounts paid or received. And yet those numbers often turn out to be much larger than legal fees. Some law departments have found that they can significantly reduce spending by focusing on their results: They can improve the handling of future work, provide more work to outside counsel who deliver the best results, structure alternative fees that reward efficiency, and change business practices to reduce future litigation. Lawyers from several companies — Tier Technologies, American Express, and FMC Technologies — recently discussed their use of results during a webcast hosted by the Association of Corporate Counsel. They emphasized the importance of regularly conducting reviews at the end of major projects to assess the time and cost invested, the results achieved, and the specific lessons learned. Such a process often consists of meeting with both internal clients and outside counsel to collect their opinions and recommendations. In addition, in-house counsel can analyze objective information regarding project duration, spending, and amounts paid and received (including comparisons with initial predictions) to find better ways to manage future work. “At the end of major litigation and transactions, we take the time to look for what we might have done better,” said Deanne Tully, general counsel of Tier Technologies. “With internal clients, I ask open-ended questions to gather their opinions about the work done by both outside counsel and the law department. I then share what I have learned with our legal teams.” Similarly, by taking a closer look at the causes of litigated cases, in-house counsel often can see patterns emerge that point the way to better business practices. “By tracking results, we noticed that we were becoming entangled in personal injury litigation when our people assisted with or directed the movement of our equipment around customers’ oil rigs,” said Mark Wolf, assistant general counsel at FMC Technologies. “As a result and through our �lessons learned’ process, we asked our people not to engage in such activities, thereby eliminating a growing area of legal exposure.” WHAT MAKES A DIFFERENCE? In-house counsel agree that results analysis is worthwhile only if there is the potential for changing future behavior to improve the performance of their legal teams or their businesses. For those law departments that track results, there appear to be two basic types of information to collect and analyze: subjective evaluations of outside counsel, and objective measures of processes and results. To capture subjective evaluations, some law departments complete brief forms (often online in a matter-management system) to rate their outside counsel on consistent scales such as efficiency, responsiveness, understanding of client goals, and predictive accuracy (in other words, predictions of duration, fees, and results). Such evaluations can be retrieved when the law department is assigning new work to outside counsel or when they meet with law firms periodically to provide feedback about the quality of service. The goals are to regularly collect key information from those who manage outside counsel as projects are completed and to make that information accessible to other members of the law department who use it to decide where to send new work. Such evaluations may also include specific lessons learned that can be applied to similar projects. Objective results assessment often is based upon electronic billing data and information automatically tracked by matter-management systems. Such data may include amounts paid or received at the conclusion of the legal project, the duration of the project, the number of hours spent on the project (this could include in-house as well as outside counsel), aggregate fees and expenses, and comparisons between predicted and actual outcomes for fees and expenses, duration, and amounts paid or received. Such information is particularly useful for comparing the results and what it took to get those results in a series of similar legal projects, with an eye to identifying those counsel who are most effective and efficient. For example, objective data from a series of similar cases handled by different firms may show that although one firm spent slightly less than the average across all cases on fees and expenses, the resulting amount paid out in settlement was well above the average, leading to the conclusion that the firm was “penny-wise but pound-foolish.” Conversely, analysis of such information can highlight better-than-average performers who merit a larger share of the company’s legal work. For busy in-house counsel managing many projects, such data can also help to identify the areas in which their time would be best spent (for example, situations in which spending is too low or too high compared with the potential losses). “We use objective data regarding spending, results, and exposure predictions to perform triage,” said Mark LoSacco, who oversees all domestic litigation for American Express. “We run frequent reports that help us to know which cases may be getting off track so that we can concentrate on those situations where we will have the most impact.” REWARDING BETTER RESULTS A fundamental shortcoming of compensating outside counsel by the hour is that there is no financial incentive to achieve better results (except, maybe, the potential for future work). In fact, outside counsel get paid more the longer a project takes, which is the opposite of what most clients want. As a result, some companies have created alternative fees that are tied, at least in part, to delivering superior results. For example, FMC Technologies withholds a percentage of ongoing fees and pays back some, all, or more than the withheld amounts at the end of the project depending upon whether counsel meet or exceed expectations. The specific factors that they apply are success (achieving a good result), accuracy (prediction of what to expect), and efficiency (whether fees and expenses come in under budget). In order for this arrangement to work for both sides, it is essential that there be a clear agreement regarding the definition of a successful outcome. “We use decision tree analysis [charting the probability of potential outcomes] to clarify everyone’s expectations about the most likely courses of action,” said Mark Wolf of FMC. “If we need to make adjustments when circumstances change during a project, we will. However, because we agree upon reasonable goals from the outset, there should be no surprises at the end regarding whether outside counsel has met our expectations.” As a result, FMC is seeing matters resolved more quickly, with lower costs and better results. And the company’s outside counsel earn a premium over standard hourly rates by exceeding the agreed targets. PUTTING RESULTS TO WORK An obvious application for results analysis is in the assignment of new work. To ensure that top performers get more work, some law departments run reports comparing the outside counsel who are delivering the best results with those who receive the largest share of spending — to make sure that they match. Many law departments also have periodic meetings with their primary firms to discuss which attorneys are delivering the best results as well as what areas can be improved. Constructive feedback can help turn around situations in which outside counsel aren’t meeting expectations (not being as responsive as expected, consistently bringing in subpar results, or not sharing work product with other counsel, for example). By discussing their analyses of results with outside counsel, in-house counsel can increase the likelihood that their expectations will be met. In addition, clients may be able to identify causes of legal liability by applying lessons learned from earlier cases. As a result, in-house counsel can take preventive actions that head off litigation before it starts. Finally, feedback from internal clients and legal project teams regarding how they worked together (in areas such as responding to discovery requests and preparing cases for effective mediation) can identify specific ways to improve the handling of similar projects. Law departments are finding that it is worth taking time at the end of important projects to gather and assess results. What they learn from this process can help them streamline future projects, identify who should receive future legal work, and reduce potential legal risks. Many law departments are using matter-management systems to efficiently track their results, both objective and subjective. Down the road, such information can lead to the holy grail of outside-counsel compensation: replacing hourly fees with compensation that rewards superior results.
Rob Thomas is vice president for strategic development at Serengeti Law. The Bellevue, Wash.-based company supplies a matter-management and electronic billing system to lawyers and companies in more than 125 countries.

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