The hiring of outside counsel should be left to the experts—the only question is who are the experts?
When Altman Weil consultant Daniel J. DiLucchio Jr. got a call 10 years ago from a corporate procurement department asking how to take a more active role in the legal department’s purchasing processes, he thought it was the start of the next big trend in law department management. Turns out that wasn’t the case.
In the last decade, DiLucchio has seen only a few instances of the two departments working together, but typically general counsel are reluctant to cede too much control to another department that is so numbers-driven.
What it comes down to, DiLucchio said, is a relationship issue. The trust a general counsel has with his outside counsel is tough to boil down to a dollar figure. But DiLucchio said law departments might benefit from using the procurement department to their advantage.
“I personally think it is a good thing,” DiLucchio said. “There are a lot of standards and processes that procurement could bring” to the purchasing of outside legal counsel.
DiLucchio said he wouldn’t suggest legal departments completely back out of the process, but said the two departments could work together. As DiLucchio sees it, there are three types of in-house legal work: strategic legal work that advances a business’s objectives; “hygiene” work that every business has to do to run a business, such as dealing with sensitive HR issues or real estate matters; and commodity work that is more repetitive and price-sensitive such as workers’ compensation matters.
“I think procurement departments, in bringing the discipline they bring to the process, would really be helpful, especially in the commodity and the hygiene work,” DiLucchio said.
There is more a procurement department can do than simply awarding work to the lowest bidder, he said.
“Most law departments don’t have right now the staff they need or that’s required to really analyze the e-billing info that they are capturing,” DiLucchio said.
Procurement departments, with the proper staffing, can analyze the overall legal spend, but also do some of the preliminary legwork before a law firm is hired. Law departments typically work off of connections and referrals and may not even realize who is out there that can capably handle the outside legal work, DiLucchio said. Procurement groups could come up with a list of firms that handle a certain type of work and interview them on how many of those matters the firms have handled and to what success rate, DiLucchio said.
But not all GCs are ready to buy into that model.
Around the same time DiLucchio got that call from the procurement department a decade ago, Penske Senior Vice President and General Counsel Michael A. Duff was having conversations with his procurement department about whether the two groups should work more closely together. But the idea never panned out.
First of all, the corporation didn’t view the legal department as spending so much on outside counsel that more wholesale reductions needed to be realized, Duff said. But there was an even larger driver behind the decision to leave well enough alone.
“I don’t really think it makes a lot of sense to source legal services primarily based on cost,” Duff said. “I think there are so many other factors that go into” purchasing outside counsel.
Duff pointed to relationships and competency as two main areas. While he said he wasn’t suggesting procurement would hire incompetent attorneys, a general counsel is more attuned to the quality of a counsel. Duff said procurement departments typically look to bundle matters and bid them out to the lowest bidder.
“I just think there’s a little bit of art in terms of figuring out who the right provider is for a particular matter,” Duff said.
Geography might play into the hiring, as would a firm’s temperament or reputation, he said. A high-profile, public matter might require a particular type of attorney or firm, he said.
Duff said he also pays attention to the comfort level of his in-house counsel colleagues. He said he typically lets the main lawyer working on a matter in his department hire the outside counsel because that in-house lawyer is the one that will have to work with them the most.
Penske’s legal department pays attention to its outside legal spend and makes adjustments when necessary, Duff said. The department won’t give a run-of-the-mill case to an expensive firm, for example. These are decisions the department just naturally makes on its own, he said.
“I don’t think we feel like we need [procurement] to be telling us what we need to do,” Duff said. Cozen O’Connor partner Jerry Pappert was general counsel at pharmaceutical manufacturer Cephalon from 2008 through 2011. The concept of working with procurement never came up. But if it had, Pappert said, he would have resisted the idea.
“Legal services are different than widgets,” Pappert said. “There’s a lot that goes into selecting counsel. I don’t think that a general counsel … retaining outside counsel is analogous really in any way to a company’s procurement department ordering whatever other kinds of goods and services they might want to order.”
Pappert said there is a lot that goes into hiring outside counsel, including their experience, talents, insight, personality and demeanor. Pappert said he wanted to know how well an outside counsel would get along with his team or other lawyers he already hired to handle part of the matter.
While the recession forced law departments to reduce costs, the buyer’s market allowed Pappert to find those savings in other ways, such as rate reductions and alternative fee agreements, he said.
“I never wanted to beat the lawyers up and bludgeon them into deals they weren’t really comfortable with,” Pappert said, adding that isn’t how he wanted to start off a relationship. “You want your team to be happy.”
The legal and procurement departments working together successfully would depend on the extent of the procurement department’s involvement, Pappert said. If procurement is writing the contracts, driving the price and selecting the counsel, “I can’t think that would be good,” he said. The general counsel still has to have the relationship with the outside team. Law firms aren’t going to understand procurement people and procurement people aren’t going to understand the true value of a lawyer, he said.
“That isn’t where the relationship is going to lie at the end of the day,” he said, meaning between the procurement team and outside counsel.
And while law departments are increasingly sending out RFPs, it is the lawyers who are vetting the responses, Pappert said. Procurement can’t analyze a legal bill as well as lawyers could, he said.
Marrying the two departments “may be good in theory, but one size doesn’t fit all,” Pappert said, pointing to the “uniqueness” or legal services.