How To Use Due Diligence In Outside Counsel Selection

Summary

Selecting the right outside counsel requires a systematic due diligence approach beyond cost comparison and referrals. Organizations implementing comprehensive evaluation processes—including defining clear requirements, weighted scoring criteria, thorough reference checks, and cultural fit assessments can achieve cost reductions while securing better legal outcomes. The key is balancing technical expertise, cost-effectiveness and strategic partnership potential to create long-term value rather than just addressing immediate legal needs.

Using Due Diligence in Outside Counsel Selection

Outside counsel partnerships with legal department lawyers often go way back, and this endurance paves the way for longevity in the in-house counsel/outside counsel relationship. But what happens when that long-term relationship sours? An in-house legal team must use due diligence in outside counsel selection.

Selecting outside counsel is a critical decision facing legal departments and business leaders. The wrong choice can result in various negatives, including high legal spend, poor outcomes, mismanagement, and damaged business relationships. The right choice, however, creates a strategic partnership that drives value, mitigates risk, helps keep budgets balanced, and supports business objectives.

Effective due diligence in outside counsel selection goes far beyond reviewing a firm's marketing materials or relying on referrals. It requires a systematic evaluation process that aligns legal expertise with business needs while ensuring cost-effectiveness and cultural fit.

Why Due Diligence Matters More Than Ever

The legal services market has become increasingly complex and competitive. Law firms vary dramatically in their approaches to pricing, technology adoption, project management, and client service. What worked for selecting counsel five years ago may no longer be sufficient in today's environment. Moreover, legal spend continues to represent a significant portion of corporate budgets.

One way to better understand hourly partner fees at law firms is to reference the LexisNexis® CounselLink® 2025 Trends Report: Benchmark Metrics to Empower Legal Cost Management.  Annually, the CounselLink team publishes a report on rising outside counsel partner fees, based on actual invoices paid during a calendar year by legal departments.

In this 12th annual report, data showed that partner fees made a slight decline in the top 100 law firms with more than 750 lawyers, with associate fees rising exponentially. Some associates’ hourly rates neared $2,000 in 2024. Access the complimentary report using the link provided and compare partner fees in various urban cities in the U.S. and 18 other countries.

The Strategic Due Diligence Framework

In this next section, we’ll look at developing a framework for due diligence in outside counsel selection with step-by-step recommendations.

1. Define Requirements Before You Start

Begin with a clear understanding of what you need. Document the scope of work, timeline, budget parameters, and desired outcomes. Consider both the immediate legal need and potential future requirements. This foundational step prevents scope creep and ensures you're evaluating firms against consistent criteria.

LexisNexis CounselLink+™ now includes data from Lex Machina®, called Counsel Selector. This dashboard is much like discovery for a matter. Legal departments can input a lawyer’s name and compare that attorney to another in the same practice area, jurisdiction, review win rates, and other insights. This side-by-side comparison provides high-level information for legal operations professionals and lawyers to hone in on outside counsel partners to view their historical track record.

Key questions to address include:

• What specific expertise is required?
• Are there industry-specific considerations?
• Do you need local presence or can work be handled remotely?
• What are your risk tolerance levels?
• How does this matter fit into your broader legal strategy?
• What budget parameters exist for hiring outside counsel?

2. Develop a Comprehensive Evaluation Criteria Matrix

Create a weighted scoring system that reflects your priorities. Common evaluation categories include:

• Technical Expertise and Experience: Assess the firm's track record in relevant practice areas, industry experience and handling of similar matters. Look for specific case studies and measurable outcomes rather than general claims of expertise.
• Team Composition and Continuity: Evaluate the proposed team structure, individual attorney credentials, and the firm's ability to maintain team continuity throughout the engagement. High attorney turnover can disrupt matters and increase costs. Look, too, at how the firm treats its associates, paralegals and support staff who are often forgotten, but play a critical role.
• Cost Structure and Value Proposition: Analyze the firm's approach to budgeting, alternative fee arrangements, hourly rates, and cost management. Consider the total cost of engagement, including potential efficiency gains or losses.
• Technology and Process Capabilities: Modern legal work requires sophisticated technology tools and efficient processes. Evaluate the firm's technology stack, project management capabilities, and ability to integrate with your systems.
• Cultural Fit and Communication Style: Assess whether the firm's culture aligns with your organization's values and working style. Poor cultural fit often leads to communication breakdowns and relationship issues.

3. Conduct Thorough Reference Checks

References provide invaluable insights into how firms perform under pressure. Don't limit yourself to the references provided by the firm. Use your network to identify other clients who have worked with the firm on similar matters. Ask specific questions about outcomes, cost management, communication effectiveness, and how the firm handled unexpected challenges. Pay particular attention to references from matters that didn't go perfectly, as these reveal how the firm responds to adversity.

4. Evaluate Financial Stability and Risk Factors

A firm's financial health affects its ability to deliver consistent service and maintain key personnel. Review publicly available financial information, recent lateral moves and any signs of instability. Consider whether the firm's business model aligns with providing the type of service you need.

5. Test Communication and Responsiveness

The proposal process itself provides valuable data about how the firm will communicate during the actual engagement. Evaluate response times, quality of written communications, and the firm's ability to understand and address your specific concerns.

AI's Impact on Due Diligence in Outside Counsel Selection

When evaluating outside counsel today, organizations should now assess:

• AI Adoption and Capabilities: How is the firm using AI for legal research, document review, contract analysis, and case strategy? Firms leveraging AI effectively may offer faster turnaround times and more cost-effective services.
• Data Security and AI Governance: With AI tools handling sensitive client data, firms need robust policies around AI use, data protection, and ethical AI implementation.
• Efficiency Gains: AI-enabled firms should be able to demonstrate tangible efficiency improvements and cost savings they can pass to clients.
• Human-AI Collaboration: The best firms aren't just using AI as a replacement for human work, but as a tool that enhances attorney capabilities and allows focus on higher-value strategic work.

Due Diligence Cautions in the AI Era

The biggest red flags about AI use by outside counsel are truth and transparency. Anyone using AI is familiar with hallucinations. Lawyers, in particular, cannot reference case law that does not exist.

A recent Mashable article indicates that a new database has been created to flag the erroneous court cases some lawyers have referenced.  Other red flags important to spot are:

• Over-reliance on AI: Firms that suggest AI can replace human judgment in complex legal matters may lack understanding of AI's limitations.
• Lack of AI Strategy: Conversely, firms that haven't adopted any AI tools may fall behind in efficiency and cost-effectiveness and then play catch-up on the legal department’s dime.
• Inadequate AI Training: Firms using AI without proper legal training on its capabilities and limitations pose risks. On another note, who foots the bill for AI training for a law firm? This type of knowledge enhancement should not be billed to the corporate client.

The key is finding firms that thoughtfully integrate AI to enhance their services while maintaining the human expertise and judgment that complex legal matters require. This adds another dimension to the cultural fit assessment -- ensuring the firm's approach to AI aligns with your organization's comfort level and expectations.

Overall Red Flags in Outside Counsel Selection

Several warning signs should trigger additional scrutiny or disqualification:

• Reluctance to provide specific references or examples of similar work often indicates limited relevant experience. Vague or boilerplate proposals suggest the firm hasn't invested sufficient time in understanding your needs. Significant discrepancies between proposed team members and those who would perform the work can lead to service quality issues.
• Be wary of firms that seem overly eager to accept any terms or provide unrealistic cost estimates. This often indicates poor project scoping or a willingness to compromise quality to win business.

Making the Final Decision

After completing your evaluation, resist the temptation to select based solely on the lowest cost or highest-profile firm. The best choice balances all evaluation criteria according to your weighted priorities.

Consider conducting finalist interviews or requesting detailed project plans from your top candidates. This additional step often reveals important differences in approach and capability that weren't apparent in initial proposals.

Document your decision-making rationale. This creates accountability and provides valuable insights for future selection processes.

LexisNexis CounselLink+ Vendor Management

LexisNexis CounselLink+ is an enterprise legal management platform providing legal departments with the core technology needed to manage matters, finances, vendors, contracts, workflow, and reporting. The vendor management feature includes dashboards to rate performance of outside counsel, measure adherence to diversity standards and enable tracking of insights that contribute to long-term success measurements.

Set up a conversation with CounselLink to improve your vendor selection process. 

Building Long-Term Partnerships

Due diligence shouldn't end when you select counsel. Establish clear performance metrics and regular review processes to ensure the relationship continues to deliver value. The best outside counsel relationships evolve into true partnerships where firms understand your business and can provide strategic guidance beyond immediate legal issues.
Regular performance reviews, feedback sessions, and relationship assessments help maintain alignment and identify opportunities for improvement. Firms that resist this type of ongoing evaluation may not be the strategic partners you need.

TL;DR:

Effective outside counsel selection requires systematic due diligence beyond cost comparison. Key steps: define clear requirements, use weighted evaluation criteria covering expertise and cultural fit, conduct thorough reference checks, assess financial stability, and test communication skills. Avoid firms with vague proposals or unrealistic pricing. Focus on long-term partnership value rather than just immediate needs. Consider the use of enterprise legal management software, like LexisNexis CounselLink, to assist with vendor management.