Managing External Counsel With Standardized Benchmarks

Managing external counsel in the legal department comes with various challenges. The primary challenge is rising hourly rates in all practice areas and geographies. Other challenges managing external counsel may arise in performance evaluations and the quality and length of legal services to close a matter. One way managing external counsel benefits the legal department is to set a standardized benchmarking program to track and measure external counsel performance against variables.

Managing External Counsel with Data-Driven Decisions

Legal departments that use data to drive decision-making are considered mature. Data-driven decisions make for informed strategy, and one way to benefit from them is to benchmark external counsel performance against tracked metrics.

This helps legal operations with the buy decisions associated with law firm contracts. Logically, law firms are not selected by a single relationship, like that of an in-house counsel to an outside counsel partner. Rather, conducting side-by-side comparisons of two potential law firms featuring tracked metrics and data to drive the decision to hire brings more confidence to the process.

This type of evaluation occurs frequently in departments other than legal, but the law department needs to catch up and make strategic legal spend decisions. Not only is this part of being a valuable partner to the organization, but it is also critical for budget management and financial oversight.

Other decisions besides financial contribute to managing external counsel, including the quality of work, the win rate for matters, length of time as an approved and vetted law firm, and stakeholder decisions. However, implementing benchmark metrics supersedes the latter.

Managing External Counsel with Benchmark Standards

Before launching a benchmark program, legal operations professionals can set the standards against which law firms shall be measured. Metrics, when set and agreed upon, form the foundation of a good benchmarking program that can serve as a reference when selecting which law firm to hire. These dependable criteria, which include hourly rates, performance, staffing mix, partner expertise, and location, become the hiring guide for the legal team and legal operations when discussing vendor performance and selection. The selection process becomes more objective, based on data. Selection subjectivity is mostly removed because the person leading the hiring process can reference the data instead of someone’s “like” preferences.

External Factors Influence the Need to Measure

The impetus for managing external counsel with benchmarks may be newer in the corporate legal department; however, data-driven decisions like this exist commonly elsewhere in the organization. The need for the law department to play catch up to other business units in the company comes from an influence of external factors that cause chaos to rein upon the law department.

The economy is always an extenuating circumstance that impacts the overall health of a company. Publicly traded corporations feel this economic impact more deeply with global trading partners, the supply chain, customers, and the protection of corporate intelligence.

Regulatory and compliance wreak havoc on a legal department with a majority of work spent in response to tracking existing regulations and complying with new ones on the global stage. In the U.S., according to Google’s experimental generative AI, which pulled answers to “how many federal regulations in the U.S.” from Forbes.com. 

“The number of regulations in the United States varies by year and can be difficult to quantify. The Federal Register, which is the daily repository for rules and regulations, contains a large number of pages. The number of rules published each year is also variable but is usually in the range of 3,000–4,500. In addition, using Forbes as its source, the generative AI tool offered this from 2023: 

“The Federal Register is the daily depository of rules and regulations. The page count for the Federal Register in 2023 was 90,402 pages, the second-highest ever. The number of rules published each year varies but is usually in the range of 3,000–4,500, according to the Congressional Research Service."

The litigiousness of a vertical market could very well be a factor that influences the size of a legal department, how many in-house lawyers are required, and the number of outside counsel hired. While that factor is rarely measured as a benchmark, it can be regarded as a second-tier influence on managing external counsel benchmarks.

Many other external factors can influence legal departments, and those working in the cost center understand what they are. The conclusive thought around this discussion is that law department oversight is more critical than ever, especially in light of the aforementioned influences.

Enterprise Legal Management Software and Managing External Counsel

Legal departments that require a higher volume of in-house lawyers, more paralegals and others to manage continuously evolving (and more) matters, need a legal operations team to assist with the administrative function of the cost center.

The procurement of software for the legal department is a function handled by legal operations. They explore the administrative needs, whether the software can manage the foundational aspects of the department, has e-billing applications, matter management, contract lifecycle management, and vendor management rolled into one platform.

Any time software captures data and centralizes documents for future audits, risk mitigation is more efficient. A vendor management system centralizes vendor compliance documentation and automates the tracking of certificates and licenses. Evaluation of respective vendors is easier with dashboards that score performance. Legal operations can evaluate vendor performance with pre-set categories so apples-to-apples comparisons are possible. Law firms in respective practice areas, size and geography are evaluated in the same bucket so that scoring is consistent.

Larger corporate legal departments benefit from the implementation of enterprise legal management software featuring all the applications mentioned previously. This type of advanced legal software permits an easier path to managing external counsel. The ELM software includes vendor management with robust dashboards and scorecards to document the performance metrics of outside counsel. Everyone seeking assistance with the selection of a law firm, or the performance evaluation of existing firms, can view analytical reporting with data to drive a hiring decision.

The blind acceptance of a law firm’s expertise to serve a company’s legal matter is no longer the only measurement criterion to make a good selection for the long term. Vendor management applications in the enterprise legal management platform allow a legal department to make more data-informed decisions based on measurement and benchmark standards.

Operational efficiency transforms law departments, and the legal department runs more efficiently with an integrated tech stack. Enterprise legal management software includes vendor management that consolidates information about the life cycle of a relationship, matter, contract, and invoice. For contract lifecycle management, having automated contract renewal reminders for all vendors is a major benefit. In the financial arena, automated AI-driven financial software helps flag billing errors and automatically corrects erroneous charges or billing descriptions. Matter management is also more efficient with comprehensive team collaboration and contracts that link to matters in one platform.

Managing External Counsel with Applied Performance Standards

Imagine a study of subjects with the A group assessed with five performance standards and the B group with none. What kind of work product would you expect to receive from each? The answer is obvious, and during the height of career aspiration, employees seeking a higher climb up the corporate ladder would want to participate in the A group with criteria, assessment and evaluation, and the eventual reward.

Now think of managing external counsel. Assessing performance criteria to their oversight can pave the way for a more successful outcome in the long term. Here are some suggested performance metrics for law firm performance measurement:

Responsibility and Accountability

In the examples above, motivation is the impetus for accountability and responsibility to an employer, a team, and certainly a client. Performance oversight helps individuals and teams improve and understand that, in the background, someone is always monitoring or watching. Improvement in accountability with measurable performance metrics also delivers credibility. Internal legal and operations teams need proof, backed by data, that a law firm is the right decision for the company.

Expectation

A primary goal of a legal department is to add value and be a good corporate partner. Understanding leadership expectations goes a long way in how vendors are selected, evaluated and selected. Once performance expectations are communicated to vendors, the entire external counsel team understands their expectations to meet performance metrics. In-house legal teams define the expectations while external legal teams adhere to them. That oversight helps maintain a good rapport between both parties and sets the stage for long-term relationship success.

Data-Informed Decisions

Numbers do not lie; they can, however, be spun toward subjective bias. In the case of evaluating outside counsel, the data used serves as a balanced standard for fair programs and impartiality. Inside counsel can reference data-backed proof points and make sound data-driven decisions, while external counsel can understand they are being rated on data-informed proof points. This type of system that identifies and prioritizes insights featuring data delivers more efficient analysis.

Managing External Counsel With Strong Evaluation Criteria

There are many vendor selection criteria. It’s up to the legal operations team to determine the most critical. What is the tenure of the law firm with the organization? What is the win rate during this tenure? Which specialties does the law firm offer? Is it a generalist firm that offers a range of expertise? Does in-house counsel want to work with the vendor; is it their number-one selection? Are services offered with a high level of expertise? What is the hourly partner rate? Has this firm asked for rate increases, and when was the last one? What kind of e-billing software does the law firm have? Is it possible to use the legal department’s enterprise legal management software to upload invoices? Does this vendor adhere to billing guidelines well?

Building and managing external counsel evaluation programs requires a committed member of the legal department to track each layer of the program. This investment in dedicating personnel to setting, tracking and analyzing benchmarking standards pays off in the future with the ability to make data-driven strategic decisions that benefit the legal department. Here is a list of evaluation criteria that should form the foundation of how outside counsel is evaluated:

Matter Type

Is the matter complex and will it require a large law firm with specialty skills? Does it encompass several jurisdictions, and it is a specialty practice area that is more expensive? Also, consider the critical nature of the matter. How many in-house lawyers are needed to help service the matter? How large will the legal team need to be, and is this important to the company to have a positive outcome?

Matter Budget

The legal department should have a historical record of similar matter budgets. If not, then a range should be indicated so that the vendor can scope the matter against the legal spend estimate. Know and flag the law firms that ask for higher-than-market rate increases. Pay attention to invoices and ensure accuracy in timekeeper submissions. Budgets should not exceed agreed-upon estimates based on the project plan, and flat fees must be billed accurately (not 5 hours against a $40,000 budget).

Timekeeper Mix

Matter staffing may not be an important criterion, but if the matter is highly specialized, then perhaps hiring the best outside counsel partner for the matter is how a selection is made. Meanwhile, the in-house legal team should know the timekeeper mix, their experience, names, length of time with the firm, and specialty area, if reasonable. That specific team should form the primary staff working a matter. If others try to bill to the matter, the financial e-billing application will flag the time charged.

Outside Counsel Spend

Depending on the matter type and estimated budget, ask the legal services vendor for a plan that incorporates hourly rates for partners and timekeepers, the expected timeline, the action plan, and the estimated costs to complete the matter for the expected duration. Legal spend management is a critical component in any legal department. A vendor management system allows real-time tracking of legal spend across all outside counsel and expenses with software providers. Invoices and billing are automated and digital. Elimination of paper optimizes invoice review and frees time for legal operations managers and lawyers. Comprehensive analytics and reporting capture visibility into legal spend that leadership can analyze. This provides real-time tracking of spend and matter management across all vendors.

Alternative Fee Plans

Negotiating alternative fees is something every company should do with its law firms. Is the vendor amenable to new arrangements? Are negotiations pleasant and beneficial to both sides?

Managing External Counsel Methodically

The legal operations function in the law department may vary based on the organization’s size; however, processes and systems are similar. Select the criteria most important to the legal department to evaluate outside counsel in a benchmarking program. Include a satisfaction score for the firms that already work with the company. While this may be entirely subjective, data will drive other criteria to inform strategic decisions.

Begin slowly to track metrics until there is a comfort level with the selection criteria. A good rule of thumb is to use three core metrics within the categories you’d like to measure vendor performance. Client satisfaction is mentioned already, and you can add legal spend and matter staffing as other categories. Three metrics in three categories is a palatable project that should not overwhelm the person assigned to the project.

The goal is to capture holistic visibility of the vendors you hire or want to hire. Stay focused on fulfilling measurement in the three categories in a balanced way. Skewing one category, such as client satisfaction, makes for imbalanced decision-making. Likely, there will be someone with a high opinion about which law firm to hire, but is that opinion based on emotion, or is it based on data?

Look at the method of capturing data and ensure that data collection is accurate, efficient and recorded appropriately. The use of ELM software provides an efficient mechanism for capturing data from e-billing software and eliminates manual methods. The collection of data through automated software provides the analysis ability for the leadership team to make informed decisions.

Data capture should be as automated as possible, however, surveying the in-house legal team provides a solid foundation of where opinions sit about external counsel. The invitation to include in-house lawyers is smart because then when a final decision is made, everyone has participated.

Once managing external counsel with benchmarking standards becomes a consistent endeavor in the legal department, more metrics can be added to measure and evaluate outside counsel and determine the best hire for the company. A strategic professional partner can help set up the program. Contact us to learn more.