Outside Counsel Guidelines Bolster Vendor Relationships

Summary

To establish a robust partnership between your internal legal team and external legal counsel, a back-of-the-napkin understanding won't suffice. Clear outside counsel guidelines are essential to improve vendor performance and prevent misalignment on assigned work or critical matters. Essentially, outside counsel guidelines help allocate resources and billable work while reducing inefficiencies and expenses.

This best practice is handy when onboarding a new law firm or updating a tenured relationship with new outside counsel guidelines. Law firms that have a long-term relationship with a company should be evaluated consistently to ensure that everyone, even new partners, is following the guidelines set up at the onset of the relationship. This alignment with company values and expectations sets the groundwork for transparency to develop a successful and trustworthy collaboration.

Below, legal operations professionals can find essential rules to incorporate into outside counsel guidelines as best practices for development and communication. Along the way, you’ll find considerations on how to execute and enforce guidelines with the law firms you hire. The end goal is to ensure that the legal department and legal services providers align seamlessly with corporate values.

What Are Outside Counsel Guidelines?

Outside counsel guidelines are a set of directives provided by a corporate legal team to its law firms. These guidelines outline expectations for law firms in managing various legal services, including legal matters, billing practices, legal spend budgets, timekeeper mix, use of technology, and other services. These guidelines lay the groundwork for a successful working relationship between a corporate legal department and outside counsel, enabling both parties to focus on delivering value to the business.

Outside counsel guidelines establish the framework for all engagements. Of primary importance are the billing guidelines established for invoicing and billing. Imagine a complex legal matter over 10 months in duration. How should outside counsel submit invoices consistently? Legal billing guidelines direct the billing methodology and provide timekeepers and partners in law firms with guidelines on how to bill against a matter. These billing guidelines help outside counsel with consistency and accuracy when submitting e-billing.

Distinguishing Between Rules and Guidelines

Legal operations professionals or in-house counsel cannot tell law firms exactly how to deliver legal services. That’s why billing guidelines are recommendations that outline preferred billing practices and procedures. As advisory guidelines for outside counsel, each one aims to ensure consistency and transparency during the e-billing process.
On the other hand, a rule is a mandatory requirement established for outside counsel adherence and is typically enforced. There can be consequences for non-compliance, such as fee reductions or termination of the engagement. Being rigid, however, with rules for every legal matter isn’t feasible. When such cases arise, in-house teams can request that outside counsel follow guidelines that ought to apply in most situations.

Essential Outside Counsel Guidelines

Outside counsel guidelines typically encompass the type of work, who performs it and financials. The financial aspect centers around the budget, timekeeper mix, partner billings, rates, and adherence to budget management.

Basically, guidelines can be set up in four categories:

• Who Performs the Work
• Type of Work by Fee-earners
• Rates, Budgets and Rate Increases
• Billing Procedures and Requirements

Outside Counsel Guidelines for Who Performs The Work

Who works on a legal matter?

Timekeeper mix is incredibly important on an outside counsel team. Assigning a law firm’s legal team at the onset of a matter is best practice. This paves the way for the in-house legal team to know who’s been approved to bill against a matter. This knowledge sets the professional tone between both parties, so there are no surprises as legal services are delivered.

Each matter is different and of varying complexity. Outside counsel is engaged to add specialty expertise to a matter and extend the manpower of the in-house team. If a law firm has been on board with a company for a lengthy duration, the in-house legal team knows about the valuable knowledge that a law firm possesses. Matter win rates also contribute to staffing guidelines.

In-house teams and their outside counsel form a symbiotic relationship. This means that in-house lawyers want to request how the legal team is represented for each matter. If a vendor wants to make a change in staffing, the in-house lawyer will typically approve that adjustment. Optimally, there will be a mix of partners with specialty subject matter expertise, managing partners, fee-earners, and timekeepers assigned to the daily work.

Another staffing guideline may be to limit the number of high hourly rate fee-earners working on a matter unless specialty knowledge is required. This is more about a budgetary guideline than staffing, but it bears mentioning.

Outside Counsel Guidelines for Type of Work Performed

If you review an e-bill from a law firm and notice that a particular timekeeper consistently bills 10 hours daily for two weeks, question the managing partner about their work-life balance policy. Establish a guideline asking for a limitation on the number of hours a fee-earner can bill daily. The purpose of this simple guideline is to ensure productivity. If a timekeeper is exhausted at day’s end after five days of consistent overtime, then how accurate, clear-headed and productive can that person be? Certainly, at critical times when a matter explodes into chaos, that type of crunch time warrants all hands on deck.

Timekeeper Rates as a Rule of Thumb

Since the COVID-19 pandemic, law firm partner hourly rates have risen exorbitantly. This consistent climb puts pressure on the legal department budget and the client/law firm relationship. Some fee hikes are justified, while others are certainly not. No one in the legal department wants to receive a request for an unnecessary 40% fee hike, and that’s why setting up rules and guidelines about outside counsel rates in advance of a matter is important.

Proposed rate increases for each fee-earner should be submitted at one point annually and before working on the legal team’s matters. This baseline provides the legal team with upfront knowledge for budget management, no surprises and e-billing that doesn’t require correction or further negotiation. If an increase in hourly rate is deemed a necessity by the law firm, then it’s up to the in-house legal team to approve that request on a case-by-case basis.

LexisNexis CounselLink 2025 Trends Report

Annually, LexisNexis CounselLink publishes its trends report, now in its 12th year. Analytical data from the CounselLink Insights Benchmarking Database looks at invoices paid by the corporate legal department to their outside counsel law firm vendors. This year, as in years past, Large Law continues to increase partner rates, and law departments continue to pay them. The report shows more legal spend, timekeeper mix among practice areas and the climb in associate fees in the largest cities. A review of partner billing practices shows that some partners bill less than five hours to a matter, indicating that they may be interested in keeping billing practices consistent. Many charts and graphs show partner rates geographically, by practice area, by hourly rate, and internationally.

Billing Procedures and Financial Expectations

Establish financial expectations prior to the first invoice from a law firm to a legal department. Simply, what is the invoice frequency, what are payment terms, what is the accrual policy, and other financial department rules or guidelines?

In your outside counsel guidelines, address conflicts of interest with the managing partner in the law firm. You’ll want to set the standard for transparency and a hard rule that your in-house legal team must be informed of possible conflicts of interest to protect competitive intelligence.

Large Law may determine that they have no conflicts of interest, and this makes sense from their perspective, especially if a practice area specializes and is popular among corporations for that practice area.

As a rule, outside counsels need instruction from in-house operations and legal teams on how to write a descriptive invoice for work delivered. This ensures a correlation of activities to build descriptions in alignment with instructions. At the same time, inform outside counsel that block billing is not acceptable. Perhaps it’s a method to obscure billing in one line item; however, the practice leads to confusion about billing descriptions

Acceptable Billing Practice Rules

Legal teams set up rules for the timing of billing for each matter. Each outside counsel team needs to understand the timing for final invoices; typically, 30 days post the close of a matter and work deliverables. Other rules may be assessed and agreed to by the law firm: a 10% reduction in payment if invoices arrive more than 30 days late, or even refusal to pay an invoice if it is six months old.

Managing accruals should be a standard rule that everyone understands. Outside counsel needs to be informed of the expected timeline to fulfill the rule so that finance can complete its accounting regarding what was billed, how long it took to accomplish a task, and by whom.

The Hard and Fast Rule of Budgets

The chief financial officer in every company is responsible for the company budget, while the legal operations director and general counsel are tasked with managing the legal department budget. A high percentage of the legal department budget is legal spend, and cost control is of the utmost importance.

Set rules for outside counsel on proposing budgets and budget type in advance of a matter start, preferably within 30 days. Any request to increase a budget requires prior approval. If there are alternative fee arrangements woven into a legal budget, consistent management of the budget is also required so the annual forecast is within range.

Rules about Outside Counsel Overhead

Alongside guidelines that can be adjusted per the circumstances, there are rules that typically stay the same, and everyone should follow them consistently.
Each in-house legal team knows the type of billable work that is acceptable. Research for discovery is not billable by outside counsel; however, in some cases, it may be. Administration time is non-billable, nor is ramp-up for a new lawyer or paralegal joining a legal team. Excessive internal communication and meetings are red flags, too. Understanding what is acceptable to the in-house legal team requires consistent communication, especially with a new matter or a new law firm.

Multiple Fee-Earners Attending Meetings and Calls

Every circumstance varies according to law firm staffing and acceptable guidelines. In-house lawyers need to be apprised of the expected department guidelines and whether to permit multiple fee-earners to attend meetings and internal communications. The choice is based on subject matter, specialty knowledge, the matter being serviced, and the complexity of the information being communicated. Understandably, minimizing outside counsel meeting time affects the budget. Whether higher hourly rate earners are required in court or at depositions is another area to discuss.

Five-Star Hotels Not Acceptable Travel Policy

Anyone on the outside counsel team must be informed that five-star hotels are not only unacceptable but unnecessary. Provide the detailed guidelines for acceptable travel expenses with a per diem when law firms are servicing a legal matter that requires out-of-town travel and accommodation. Consider employing your corporate travel guidelines for outside counsel to follow. That way, no one is confused about acceptable billing practices.

Administrative Function and Support

Everyone wants to get paid for the administrative function, but is this truly feasible? The legal spend budget is already taxed with many timekeepers and in-house legal managers, so adding admin services is unsustainable.

Outside counsel guidelines customarily include the hard-and-fast rule that admin services are not billable and are part of the law firm’s overhead expenses. Meanwhile, it’s not the company legal department’s job to train junior lawyers. This training time is non-billable. Upon establishing a vendor relationship, discuss the administrative work that is not billable:

• Non-billable document touches and preparation
• Administrative support to organize, index, file docket and document files
• Preparation of documents like collation and binding, labels, copies, scanning, stamping, and other coding
• Proofing, document review and copy processing
• Non-billable travel, scheduling, budget preparation, research
• No one bills for travel to and from meetings, including to tradeshows or in-person workshops
• The law firm finance department does not bill invoice preparation, processing or inquiries related to budget negotiations or accruals
• The support team, like secretaries, librarians, associates, interns, or law clerks, are considered administrative roles and their time is deemed non-billable.

Business Overhead Never Billed to Company

In some cases, businesses divide utilities, subscriptions, or data and internet to respective clients; however, in the case of outside counsel, legal departments regularly prohibit this behavior. So, law firms do not bill overhead expenses, including research or library subscriptions, hosting, their software, telephone, or postage. There may be other potential prohibitions negotiated at the start of an engagement.

Implement Outside Counsel Guidelines at Your Convenience

• Whether you’re drafting outside counsel guidelines for the first time or updating existing ones, they should be written with clarity, be concise and simple to understand.
• Remember to update guidelines periodically. No one should draft guidelines and plop them on a dirty shelf to be forgotten. Revisit them to ensure they remain compliant with corporate and legal department policies and procedures.
• Highlight the most important guidelines to help timekeepers focus on improving work performance. Keep guidelines to an acceptable volume as no one wants to comb through several hundred pages to remember how to implement your instructions.
• Set your own compliance standards that are comfortable for the in-house legal team and their outside counsel. Slapping guidelines that number 200 pages on the first day is not productive and may cause confusion and lack of compliance.
• Company policy dictates legal department guidelines and thus the work deliverables of outside counsel. At the onset of a matter, discuss these important guidelines that are non-negotiable, perhaps a per diem during travel or other business restrictions.
• The invoice review process is a topic that everyone needs to understand prior to invoice submission. Inform outside counsel how invoices are reviewed, how errors are handled, whether negotiations and clarifications will occur and their timing. This level of transparency helps alleviate disputes and confusion.
• Establish rapport with the law firm, starting with designating a relationship manager. Inside the legal department, there may be one designee who manages the law firm relationship or several, depending on the type of query or issue. This systemized method of communication helps relationships succeed for the long term and fosters collaboration.
• Law firm relationship managers help streamline the relationship between in-house legal teams and the law firm. In particular, legal operations professionals prefer one point person on the vendor side, so the business relationship runs smoothly. This individual, also known as a relationship manager, controls regularly scheduled meetings at your preferred cadence. The subject of those meetings is to review work deliverables, compliance with guidelines and rules, opportunities to improve the relationship and collaboration, how well matters are being resourced, and other issues that pertain to the vendor relationship.
• The how of communication is important and shouldn’t be relegated to a reactionary mode. Be proactive in setting up communication methods for various concerns, routines and protocols. If everyone knows what to do in different circumstances, communication will be streamlined.

Use LexisNexis CounselLink+ Enterprise Legal Management Software

A wonderful benefit of enterprise legal management software is the ability to invite outside counsel to submit their invoices directly in the software interface. They can upload a PDF, LEDES file or create the invoice in the enterprise legal management system. This eliminates many steps and creates efficiencies at the same time with the bill format. If the finance team needs another billing format, then add that criterion to the billing rules for outside counsel.

Another benefit of using ELM software is that accurate invoices can be quickly approved and not held up in the never-ending queue of invoice review. On the flip side of that equation, invoices with billing errors can be automatically rejected, or the errors can be automatically flagged and auto corrected.

At the same time, legal operations professionals who utilize enterprise legal management software also have access to intelligent financial tools that help detect invoice errors. In-house legal teams enforce billing guidelines during invoice reviews and depend on legal e-billing software to uncover rule violations and potential guideline breaches. The digitization of e-billing via software applications reduces the need for manual invoice review and saves valuable administrative time for the in-house lawyers.

The financial applications, shared above, in an enterprise legal management platform like LexisNexis CounselLink+, provide advanced invoice review tools. These intelligent tools, powered by AI, flag errors in billing descriptions against guidelines and rules set by legal operations and finance. Law firms do not need to conform to UTBMS codes or send LEDES files, as the software standardizes the billing. A rule of thumb is to require a single invoice per respective matter. This ensures that invoice reviewers can maintain accuracy during bill review.

In the CounselLink+ enterprise legal management platform, there is a dashboard that includes ways to identify the diversity of the outside counsel team representing the law department. While many changes are afoot with diversity programs at the largest public corporations, it may remain a significant factor in company policies. Diversity, equity and inclusion have often been a requirement for outside counsel teams, and this corporate guideline can be reviewed based on matter management and timekeeper mix. Certainly, legal operations directors and general counsel must determine whether this guideline remains critical for outside counsel.

Contact us to learn more.

TL;DR

Outside counsel guidelines are set at the beginning of a relationship between a law department and its law firm so that everyone understands the financial implications associated with various guidelines and rules. In this article, we covered:

• What are outside counsel guidelines, and the various types of guidelines and rules law firms can expect
  Various rules about outside counsel overhead and what is acceptable billing practice
• Essential outside counsel guidelines based on the type of work performed, timekeeper mix, budgets, and financial expectations
• Use of enterprise legal management software to bolster vendor management programs, develop diversity guidelines, manage billings and AI-driven invoice review, and more
• LexisNexis CounselLink Trends Report showing data about timekeeper mix, rising outside partner fees, practice areas, geographical billings, and more