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One of the primary responsibilities of in-house counsel is managing outside counsel. This function involves allocating work, assessing performance and controlling spending. Yet how do in-house counsel learn effective management techniques? Some of their most valuable ideas often come from other in-house counsel. More than 350 law departments shared their practices in a survey conducted last spring by the American Corporate Counsel Association and Serengeti Inc. The findings of that survey are presented in a report released last month, the 2001 “Partnering with Outside Counsel Survey.” These highlights from the report may be useful not only for in-house counsel, but also for law firms with corporate clients. � Spending.The most pressing business issue identified by law departments is reducing outside legal costs. Other pressing issues are: staying apprised of company activities that may have legal implications, too much work for too few resources, keeping up with changes in the law, and acquiring technology (to improve internal efficiency and to work with outside counsel). Are outside counsel responsive to the cost concerns of in-house counsel? Apparently not. Outside counsel received the highest grades for demeanor and expertise, but the lowest grade for being conscious of costs. (Other low scores were given for being proactive, for predictive accuracy and for business knowledge.) The clear message for outside counsel is that to earn their clients’ trust (and the business that comes with it), law firms must demonstrate that they are as concerned with being cost-effective as they are with getting the work done. One way to address spending issues is to do more work in-house. On average, companies are spending approximately twice as much on outside counsel as they do on their law departments. However, in-house counsel see this relationship changing, as they shift work away from law firms to their law departments. As a group, in-house counsel projected that for 2001 law department spending would increase by about 5 percent, while spending on outside counsel would decrease by 4 percent. Since the expected increase in law firm hourly rates is about 5 percent, the inescapable conclusion is that there will be less work for outside counsel. � Convergence.About one-third of the law departments surveyed reduced the number of primary firms they use by more than half, with the median dropping from 20 to eight. Large companies (annual revenue over $1 billion) are approximately three times more likely to have used a convergence strategy than small companies (annual revenue less than $100 million). The top three benefits of convergence were identified as: making outside counsel more aware of business needs, getting lower fees and spending less time on managing outside counsel. � Increasing Controls.In-house counsel are dictating the terms under which they do business with their law firms. Nearly three-quarters of in-house counsel require outside counsel to agree to specific terms in order to be retained. The most common are: preparing budgets and associated reports; following travel expense rules; providing periodic written updates and early case assessments; granting discounts from standard hourly rates; and not changing assigned attorneys without approval. On average, budgets are required for about 40 percent of matters handled by outside counsel, more often for litigation matters than for transactional and other types of matters. In-house counsel are also generating management reports to keep tabs on the performance of their outside counsel: for each matter, the most commonly collected data is cumulative legal expenses, total outcome and budget-to-actual legal expenses. Many departments also monitor each firm’s total periodic billings. � Conflicts.In-house counsel are demanding a higher level of loyalty from their law firms, with approximately three-quarters requiring conflict checks that exceed what bar ethics rules require. These additional checks are for past representation of an adverse party, current representation of business competitors not otherwise adverse in a specific matter, and positions taken in prior cases that may conflict with a current matter. On the other hand, in-house counsel are very lenient in granting waivers when conflicts are discovered: Overall, more than 85 percent of such requests were granted. CREATIVE APPROACHES The survey also explored alternative approaches to the traditional relationships between law departments and their law firms. One example is the practice of secondment or lending a lawyer to a client, which is used by more than 13 percent of in-house counsel. This practice usually reduces hourly rates, but it is not gaining momentum, with only 4 percent of in-house counsel expecting to do more secondment during the coming year, and 37 percent expecting to do less. Fears of law firms that this practice leads to “raiding” are unfounded: Only 6 percent of the companies had hired a lawyer who was on loan. A strategy that may be gaining acceptance is negotiating discounts for early payments. About 8 percent of respondents say that about one-fourth of their law firms agree to this practice, with an average discount of 5 percent for payments within 21 days. A majority of law departments surveyed have negotiated alternative billing arrangements, with discounted hourly rates being the most common, followed by fixed fees and contingent fees. Many other management strategies are covered in the survey and report, including finding qualified outside counsel, assessing performance, and collaborative technologies (electronic billing, videoconferencing, extranets, shared platforms). Rob Thomas is vice president of strategic development for Serengeti Inc., whose Internet-based technology for law departments streamlines the management of outside counsel. He may be reached at [email protected]. The 200-page report is available for purchase at www.serengetilaw.com/survey.

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