How To Evaluate Outside Counsel Performance

Legal departments must evaluate outside counsel performance periodically, or eventually poor performance impacts the overall health of the department, its ability to be a valuable partner to the enterprise, and the maintenance of a balanced budget.

The first step when we evaluate outside counsel begins with setting the guidelines for that evaluation and vendor management. A legal department needs to consistently define its measure of success and then communicate those success guidelines and quality metrics to all law firms and legal services providers.

As an example, imagine a game of hide-and-seek. If the seeker is not informed, they must count to 100 and, instead, they only count to 10, the hiders don’t have time to find their hideaway. The game’s guidelines were not established up front, and players (in this case in-house counsel and their law firms) are unclear about the rules.
Establishing rules provides a level playing field, and everyone playing on their respective teams has a starting point to deliver, compete and service clients.

Tips to Evaluate Outside Counsel Performance

Reviewing law firms to ensure they are the right fit requires input from the entire legal department, especially the internal legal team who work closely with outside counsel. Here are several tips to help in-house counsel focus on the metrics to evaluate outside counsel performance:

Gauge Overall Quality

The legal team works daily with outside counsel. What is expected of the external counsel? Have legal department leadership established metrics to help gauge quality performance? Lawyers in the corporate legal department need to weigh in on how well the outside counsel team performs, and that includes all timekeepers, associates and partners.

Assess Budget Management

The foremost metric for outside counsel is their adherence to budgetary guidelines. Is the law firm consistently billing over budget, or do they regularly match budget parameters?

Set Periodic Discussions

Everyone on the legal team interacts with outside counsel. That’s why it’s imperative that everyone provide input into their experience, observations and considerations about whether outside counsel is performing to expectation. For that to happen (performance to expectation), all law firms representing the enterprise need to know the established metrics for which they will be evaluated. This exercise is helpful to fend off any issues that arise before an alarm bell sounds.

Outside Counsel Database

A legal department should incorporate an Enterprise Legal Management (ELM) software solution to evaluate outside counsel performance and expertise. This platform allows the creation of a database that stores the analytical information needed to evaluate outside counsel. Instead of utilizing a manual spreadsheet, the software automatically captures evaluation scoring and provides analytical reporting on outside counsel performance.

Evaluate Rate Increases

According to the CounselLink® 2024 Trends Report, average law firm partner rates rose 5.4% in 2023, the highest level since 2013. In law firms with 750 or more lawyers, the median partner billing rate is 61% higher than the next smaller tier of law firm. The database created by enterprise legal management software helps legal operations conduct a side-by-side comparison of similar law firms to assess the scope and quality of services against the potential for rate increases. Annual rate increases are now expected, but there are practices to mitigate outside counsel rate increases, and these are suggested in the CounselLink 2024 Trends Report. Once the database is created and insights are added to respective law firm profiles, the law department can score and collectively determine assignments to forward to appropriate firms.

Outside Counsel KPIs

Just like the legal department operations team conforms to key performance indicators (KPIs), so, too, can outside counsel. Performance metrics can be developed and presented to a new or existing law firm. Quarterly, or semi-annually, evaluating outside counsel performance can be done against KPIs. The evaluations from the larger legal department team and the scorecards for each firm help determine which KPIs are critical to measure.

Set Service Excellence Standards

Just like implementing billing guidelines for vendor management, outside counsel can and should adhere to service excellence standards. Here are several suggested areas to implement service standards:

1. Kickoff. All critical parties must attend an engagement kickoff to synchronize scope, objectives, deliverables, milestones, and budget.
2. Firm Knowledge. What level of expertise is required and will partners work on and manage the matter with their advanced knowledge, or will less-experienced lawyers work on the matter.
3. Critical Strategy. Insightful knowledge about judges and opposing counsel is critical to the strategy of case management. Does the law firm have that type of critical thinking that goes into holistic matter management?
4. Communication. What is the approach to communication with the law department team, especially for the details surrounding a matter, in addition to the major developments in a case.
5. Budget. There are so many aspects to budgeting critical to evaluating outside counsel. How are timekeepers billing? Are partners dedicating quality time to the matter with visibility? Is someone managing budget guidelines and ensuring that budget variance is not exceeded?

All of the above factors contribute to how we evaluate outside counsel performance. Once vendor management dashboards are set up in the enterprise legal management solution, more metrics can be added so that the legal team and legal operations has high-level visibility into whether they hire outside counsel again. To learn more about how to set up vendor dashboards, scorecards, analytical evaluations, and more to evaluate outside counsel, reach out here.