Once a year, the attorneys and staff from Southern California Edison Co. fill out report cards for the firms to which the company farms out legal work. The reports grade the firms according to how well they met Edison's expectations — and budget.

"At the end of the year, we have a committee in our department that does an assessment of the work performed by the firm," senior vice president and general counsel Russell Swartz said. "They interview the attorneys who have interacted with the firm. We also talk to some of the business representatives and nonlawyers who have had interactions with the law firm."

Then Swartz meets with the engagement partner and any other relevant attorneys to break down the report. The exercise serves to not only grade the firm, but Edison as well. Occasionally, a law firm is rewarded, sometimes with a monetary bonus.

Based on feedback from firms, Swartz said, they mostly welcome these reports, given that they tend to focus on ways to improve their relationships with the company.

Among the law firms that Edison uses as outside counsel are Hogan Lovells; Latham & Watkins; Morgan, Lewis & Bockius; Munger, Tolles & Olson; O'Melveny & Myers; and Steptoe & Johnson LLP.

"By and large, the message that we deliver in those sessions is positive," Swartz said. "It needs to be a dialogue, not a lecture on our side."

Not all the report cards delivered to firms contain good news, of course. Swartz recalled one incident a few years ago when there was a "significant breakdown in the relationship" coupled with some rate terms that did not meet Edison's standards. "We were very candid," he said. "My recollection is that it was fairly dour in terms of the tone, but the firm appreciated the message we delivered."

When selecting the firms to do business with, Swartz said, he looks for diversity, familiarity with the company and the industry, efficiency and cost.

Southern California Edison serves some 14 million people in more than 180 cities across 50,000 square miles. The company employs 95 in-house attorneys, all located at its headquarters in Rosemead, Calif., east of Los Angeles.

The attorneys handle matters including commercial and tort litigation, employment law, environmental issues, energy, transactional work and corporate governance. Swartz said that the bulk of the work involves regulatory matters.

"We are a heavily regulated entity both at the state and federal level," he said. "Because of that, quite a few of our attorneys are regulatory focused."

But there are times when matters are either beyond their scope of knowledge or require a larger team than the energy company has on hand.

"Our preference is to keep matters in-house whenever possible," Swartz said. Otherwise, Southern California Edison will tap outside attorneys for matters related to the Federal Energy Regulatory Commission or intellectual property. Litigation is often times handled by outside counsel as well.

"We are not staffed to handle significant commercial litigation," Swartz said. "That type of litigation is not routine and tends to increase in volume and decrease in volume. We want greater flexibility."

Swartz joined the company in 1993 and took on the role of senior vice president and general counsel in February 2010.

Certain jobs lend themselves to a fixed-fee arrangement, including appeals, he said. Not so for traditional litigation. According to Swartz, litigation sometimes can be broken up into different payment structures. But that's not to say that alternative fee arrangements don't carry their own risks.

"One of the concerns with a fixed-fee arrangement is that the firm will put up a premium to protect itself," Swartz said. "Do you choose the predictability of the fixed fee so you can do planning around it, or realize that it is more advantageous to do the hourly rate? Sometimes it works out for you and sometimes it doesn't."

He decides whether to pay a fixed fee case by case. "We adhere to budgets just like other aspects of the company," Swartz said.

But it is not just Southern California Edison's end-of-year report card that helps guide outside counsel. The company puts together a guide that sets out its expectations and how the law firm should interact with Edison attorneys on a day-to-day basis. One section goes over the items the company will accept bills for and which items he will not reimburse. Another goes over how firms should add attorneys to a matter. "That guide, which we provide to all outside attorneys, sets the expectation to the relationship," Swartz said.

Swartz also takes a more hands-on approach to the matters referred to outside counsel. Rather than simply turning over the matter entirely, the in-house attorneys remain engaged.

"We don't view it as a situation where we turn the matter over to the law firm. In the area of litigation, it is typical that our in-house attorneys will be shown as co-counsel," Swartz said. "That gives us a way of having insight into how the matter is being handled, as if we were doing it ourselves."

KEYS TO SUCCESS

• Recruit and retain highly talented and well-trained in-house personnel so as to maintain the flexibility to send only the most challenging or ­specialized matters to outside counsel.

• Select outside counsel that share the corporate client's values in terms of qualities like integrity, respect for others and commitment to diversity.

• Set the relationship and billing expectations with outside counsel in advance through the use of an outside -counsel guide or similar "rules of the road" document.

• Where possible, establish "partnering" teams of inside and outside attorneys on individual matters, thereby providing additional training ­opportunities for inside personnel and a second channel for ­matter -status reports.

— Russell Swartz, senior vice president and general counsel