Ten Things: Preparing Outside Counsel Guidelines – The Keys

Managing your relationship with outside counsel can be challenging.  The good ones work hard to make it easy but, even so, there are times when you and your outside lawyers are not on the same page.  One of the areas where this is most common is billing.  In short, what should you expect to pay for and what should you not expect to see on a bill?  Moreover, there is the issue of logistics, i.e., when do you need to get the bills, what information needs to be included, etc.  There are many facets of your relationship with outside counsel that you need to think about and constantly manage.  One way to do this is through an engagement letter.  While this is a good device to manage some aspects of a particular project, the better path is to create and maintain a set of “Outside Counsel Guidelines” — a standing set of rules for how you and your outside counsel will interact on key issues, especially on billing.

Most in-house legal departments have such guidelines ranging from a few pages to over 50 pages or more.  Some newer or smaller legal departments may not have any guidelines at all.  Regardless of where you find yourself on the continuum of “got them” to “don’t got them,” as we near the end of the year this is the perfect time to either plan on creating guidelines in 2017 or updating the guidelines you already have on the shelf.  If you’re in the latter position, it might be time to think about a wholesale review of your guidelines and whether or not you have a set that matches up with how the department operates today or whether you are living with something created 10 to 15 years ago that doesn’t work well in today’s environment.  This edition of “Ten Things” will set out some of the basic things you need to consider when preparing or updating your Outside Counsel Guidelines:

1.  Be reasonable.  I have been on both sides of the aisle as General Counsel and as outside counsel.  One thing I always tried to ensure was that, as in-house counsel, we were reasonable in what we included in our outside counsel guidelines and in the manner in which we interacted with our outside counsel, especially over billing and invoicing.   My assumption was that outside counsel wanted to do a good job, wanted to comply with our guidelines, and wanted to ensure that we felt that we got value for the money we spent with them.  Accordingly, I tried to ensure that our guidelines were not too onerous, to the point of stifling creativity and good legal work and that if something was “off” in a bill or with behavior that we spotted it early and picked up the phone to talk about it.  Was it a mistake on their part or something that needed further explanation and changes to ensure compliance going forward?  Of course, if we had to have these types of conversations too many times the response was not more phone calls and emails, we simply dropped you from our list of counsel at the first opportunity.  That said, I did not try to micromanage “how long” it should take to draft a motion (though I was careful about first years doing work or if something seemed really out of whack time-wise I would ask questions and usually there was a good answer).  Likewise, I know that lawyers need to meet – as long as the meetings were necessary to advance our matter and those attending were contributing to our matter (and not just hanging out for an hour).  If you were outside counsel before going in-house, think of the things you needed to do to serve the client properly and consider that when you are preparing, updating, or enforcing your guidelines.  Finally, be prepared to make exceptions from time-to-time. Nothing is ever in stone.  Consider why outside counsel is requesting the exception (and is it reasonable/based on a real need), how problematic is it for the company if you agree, what happens if you say “no,” and is it a “one time” change or will the firm expect the same changes on every matter going forward.

2.  How you want to be invoiced.  This is probably the key area covered by Outside Counsel Guidelines, i.e., the mechanics of how the firm will invoice your company.  The first thing you will require is a detailed invoice showing timekeeper, detailed description of work (i.e., no “attention to” entries), time spent, etc. You will want disbursements (especially travel) set out in detail. If you use an e-billing system, you want the invoice in the right format for e-billing.  Likewise, if you use task codes, set out that requirement in the guidelines.  Same for your requirements around budgets and for monthly forecasts on spending.  Remember that a budget is different from a monthly forecast.  The former is an estimate for the entire project.  The latter is a forecast for what you just spend in the prior month and what you expect to spend in the current month (or whatever time period you want to measure).  In our guidelines, we noted that all invoices would be paid 45 days net (vs. the more traditional 30 day net) and that we reserved the right to reject any invoice sent to us more than 60 days after the work was performed.  This latter requirement is really important.  You cannot properly manage legal spend if the law firm is sending you bills for work that occurred months in the past.  You have every right to expect that lawyers will get their time in monthly and you will be invoiced promptly.  Finally, you want to reserve the right to audit invoices and that the firm will reasonably cooperate in such a process.

3.  Travel policy.  Travel is an area where there is frequently friction between in-house and outside counsel.  Some outside lawyers are used to a “higher” level of travel than most in-house lawyers and that cost is usually passed along to the client – unless you have guidelines about travel and what is and what is not acceptable to the company.  The most basic rule is that your outside counsel should live by the same rules you do when it comes to travel.  That means the same level of hotels, the same class of service for air travel, car rental, meals, etc.  In the guidelines I worked on, we got as granular as possible so things were as clear and we were not caught by surprise with large travel expenses (which can really add up if you’re not watching carefully).  I also told my outside counsel that if they wanted to stay at the Ritz-Carlton or Four Seasons, they could – but the company would not pay for it.  Same for flying first class or using upgrade “stickers” and so forth.  They were always free to book what they wanted, but I would only pay for what the policy allowed and if they made it too difficult for me, travel expenses were on them.  Virtually without exception my outside counsel had no problem complying.  Anyone who did was not on our outside counsel list for much longer.  If you have a preferred travel agency that can get you discounts (or that aggregates company travel to gain discounts), consider requiring that your law firm book through them.  Like most things, the key is to have a rational policy around travel expenses and, at a minimum, that it matches what’s expected of the company’s own employees.

4.  Who should do the work.  You guidelines should set out expectations around how your matters will be staffed.  While this can also be part of the engagement letter, it’s good to level set through your guidelines.  You want to ensure that your firms are thinking about the right balance of partners to associates to para-professionals to clerical staff.  You want the work done at the right level, e.g., you do not want lawyers drafting deposition notices – a task paralegals or administrative assistants can easily do. Another area you want to cover is “training” and how many lawyers should attend hearings or depositions.  To be blunt: you should not have to pay to train young lawyers how to draft contracts, pleadings, attend hearings, etc.   Our guidelines noted that we would not pay for summer “associates” and first year lawyers could not work on our matters unless agreed to in advance.  And when we agreed, we typically got a substantial discount off the standard rate for first year lawyers.  Most firms have no problem doing something like this because they know that young lawyers are inefficient.  Likewise, we were clear that it did not take two lawyers to attend a status conference or defend a deposition.  If firms wanted to bring young lawyers along to things like this so they could get experience, that’s fine.  We just refused to pay for it.   Having a conversation with your outside counsel about staffing and use of young lawyers is well worth the time (in addition to having it spelled out in your guidelines).  Also, be sure that all of the lawyers working on your matter receive a copy of the guidelines.

5.  Use of specific vendors.  You can save a lot of money if you cut your own deals with legal services vendors such as big copy jobs, court reporters, e-discovery, document collection, overnight mail, due diligence, discovery counsel (i.e., lawyers to do document review and management, working in concert with trial counsel), etc.  Don’t be afraid to negotiate your own deals and then require that your outside lawyers use your vendors.  If your outside counsel can “beat” your deal, that’s fine and you can make an informed decision about whether you want to make an exception.  But, because volume is usually the driver for lower prices, be careful that you don’t end up costing yourself more by using the law firm’s vendor vs. your own.  Additionally, be sure to note that the firm cannot engage any third party vendor without your permission and without an estimate of the cost.

6.  Things you don’t pay for.  I saw a lot of “interesting” things on legal invoices over the course of my career.  A number of which simply made me shake my head (and I’m not alone here).  Your guidelines should set out things you do not pay for.  Here is my list based on many years of experience:

• Car service to and from the office
• Meals where the client is not present (unless the attorney is traveling)
• Travel time (but will pay for work done while traveling)
• Mobile phone bills, local or long distance calls
• Electronic research tools (such as Lexis or Westlaw)
• Postage
• Airline lounge membership/stays
• Faxes
• Staying current with developments related to my business
• Admin overtime, messengers, file creation and maintenance, etc.
• Library material
• Time spent preparing bills
• Summer associates and first year lawyers (unless agreed)

There are, of course, other items you can include here.  Basically, over time, you will develop (or already have) your own list based on your experiences with outside counsel.

7.  Conflicts.  As firms consolidate, conflicts become a real issue.  One thing I have seen larger firms try to obtain is a blanket waiver of conflicts (sometimes called “advance conflicts waivers”).  I would say no to this, and set out your policy on this in your guidelines.  Moreover, you should set out that you expect the firm to advise you before undertaking any representation of a client whose interests are generally adverse to the company, for example a competitor.  It may not be an actual “conflict” under the ethical rules, but it’s fair to ask outside counsel to advise you of such representations.  Additionally, if your law firm for some reason needs to withdraw from a representation of your company (either voluntarily or via court order) because of a conflict, you should require that the firm pick up the cost of transferring the matter to new counsel and for getting new counsel up to speed on the matter and if for some reason there is work product that can no longer be used due to the conflict, that the firm refund you the fees and costs associated with that work product.  Finally, while not really a “conflict,” I have seen some guidelines set out a requirement that the law firm offer the company the “best rates” offered to companies of similar size or similarly situated.  This type of “MFN” clause is interesting, but unless it is written very carefully, it’s usually pretty easy to avoid by the law firm, e.g., what does similarly situated really mean?  My opinion is you’re better off negotiating your rates as part of the engagement letter and when you are properly armed with market data on rates.

8.  Guidelines trump retention letter.  Most retention letters are prepared by outside counsel, which is fine.  However, when you get the retention letter don’t just skim over it and sign it as is (even if they send it to you as a signed pdf).  Take the time to read through it and ensure that a) it accurately reflects your understanding of how the engagement will work and any special terms or pricing you agreed to, and b) that there is nothing in the retention letter that conflicts with your Outside Counsel Guidelines.  If either is not the way you want, change it – do not be afraid to mark up the retention letter.  One thing I frequently did (especially if most of the letter was fine) was simply hand-write by my signature “Nothing in this letter trumps the [Company Name] Outside Counsel Guidelines and in the event of a conflict, the Outside Counsel Guidelines shall govern.”  On occasion, I am glad I wrote this into the engagement letter.

9.  Guidelines do not replace a conversation with outside counsel.  You can write the most elaborate Outside Counsel Guidelines, covering everything from A to Z, but in my experience your guidelines do not replace the one thing that is most important – regular conversations with your outside counsel about the relationship, especially around billing and costs.  It may feel a bit scary and even awkward, but nothing will pay back dividends like an honest conversation with your outside counsel about the bills.  You should start with your “budget” for every matter, i.e., how much are you looking to spend and can your outside lawyers manage to that number?  Do you want lots of formal written work product or are you okay with a phone call or an email with the “answer?”  How many lawyers do you think should be working on this matter and which lawyers do you want to see (or not want to see) on the file?  Basically, you should have a discussion with your counsel at the beginning of every matter to go over what you expect and give them a chance to discuss any issues or concerns they might have.  You will find that most outside counsel welcome a conversation like this.  They want to do a good job and they want to meet your budget.  It’s a rare outside lawyer who simply doesn’t give a crud about what you want and trying to make you happy.  So, take advantage of this natural inclination to please the client and have a chat.  Once you have the first one, you find all of the others to be much easier and even more productive.  Don’t hide behind your written guidelines.  Pick up the phone and establish a real partnership with your outside counsel.

10.  Review annually.  If you are a regular reader of my blog you know that one thing I preach consistently is that you cannot prepare policies and guidelines and then just leave them on the shelf until “something happens.” You need to schedule regular reviews and you need to create the right team to help with that review – potentially even folks outside the legal department.  For purposes of outside counsel guidelines you can probably get by with an annual review.   It’s unlikely you need anyone outside the legal department to weigh in on the guidelines, but would consider input from Finance regarding any particular terms they want to see regarding payment (e.g., 60 days net) and if you feel adventurous you can ask one or two outside counsel to give you feedback.  As for the team, it should be a mix of veterans and “newbies,” and you should be sure that different groups are included (e.g., Litigation, Corporate, IP, etc.).  The key is to get a wider set of viewpoints about what works, what doesn’t work, what needs to be tweaked, what needs to be radically re-done with your guidelines.  And this is a great project to delegate to someone on the team (or to raise your hand and offer to lead).  Once you update your guidelines, be sure you distribute them to everyone in the department (along with a summary of what’s changed) and ensure that they are distributed to your current outside counsel as well as for any new projects with new outside counsel.

*****

Outside Counsel Guidelines can be a very helpful tool to help manage your relationships with outside counsel.  Don’t be afraid to rewrite them from scratch every few years – the legal profession is changing way too fast to just sit back and assume what you already have is good enough.   And, there are many other topics you can/should cover in your guidelines, e.g., confidentiality, media relations, “up-the-ladder” reporting, dispute resolution.  Here are a few additional resources to help you get started:

• Business of Law Blog – Outside Counsel Guidelines – Practical Tips (with link to free white paper).
• Corporate Legal Operations Consortium (CLOC) – a standard set out Outside Counsel Guidelines (under revision as well apparently)
• ACC – sample billing guidelines.  You might also be able to exchange guidelines with members of your local chapter.
• ABA – sample billing guidelines.
• Wal-Mart – billing guidelines.

Sterling Miller

November 30, 2016

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