Best Practices for Outside Counsel Management

Managing your outside counsel is about more than just picking the best firms. That’s a solid start, but you must also keep a close eye on their work to ensure they’re doing a great job at a reasonable cost.

Successful legal operations are about striking the right balance between expertise and efficiency, ensuring the firms you choose align with your company’s values and financial goals.

In-house legal teams need a strategic approach to outside counsel management underpinned by a blend of clear guidelines, transparent communication, and the right technology.

Know When To Send Work To Outside Counsel

By thoughtfully assessing each matter’s risk and complexity, in-house attorneys can make informed decisions about when to leverage the strengths of the in-house team and when to enlist outside counsel’s specialized skills. This strategic approach ensures that legal departments can manage their staffing effectively while achieving optimal organizational outcomes.

Keeping work in-house is often the most cost-effective approach. However, outsourcing is often necessary.

For example, matters that require specialized legal expertise, not present within the in-house team, should be considered for outsourcing. This is particularly true for litigation or high-stakes matters where the strategic advantage external counsel offers can be invaluable.

Or when in-house teams are stretched thin, outsourcing helps your legal department ensure timely and effective legal responses. In-house teams must assess their workload and capabilities realistically, identifying when external support is needed to maintain the quality and efficiency of legal services.

The best practice is to assign a risk score and a complexity score to all matters. High-risk, high-complexity matters likely need to be handled by firms with the required expertise in that practice area.

On the other hand, in-house attorneys can typically handle high-risk, low-complexity work that doesn’t require niche legal expertise. In these cases where risk remains high, it pays to have internal expertise with deep knowledge of your company’s risk appetite to manage the matter. Plus it’s more cost-effective and efficient to manage this type of work in-house.

Finally, for high-volume, routine, low-risk work, consider outsourcing to alternative legal service providers (ALSPs) or simply cutting that work if possible. If neither option is available, you should assign that legal work in-house, ideally to a junior attorney, paralegal, or administrator.

Codify Your Needs

By clearly documenting your legal department’s priorities, preferences, and procedures in outside counsel guidelines (OCGs), you establish a blueprint that your firms can follow to ensure their services align with your company’s goals and legal strategy.

Your OCGs should be concise and use clear examples to illustrate your point. The document should align with your internal policies and company values so your outside counsel acts as an extension of your organization. For example, you could require firms to abide by your DEI rules or travel and stipend policies.

Use outside counsel guidelines to establish how you want outside counsel to staff your legal matters for optimal legal spend. For example, you’ll want to lay out what work is typically appropriate for associates versus senior partners at the firm.

This document also outlines what activities are and are not permissible for billing hours. You might limit how many hours firms can bill toward internal communications or bar multiple fee earners from billing for the time they spend in the same meeting together.

Finally, your OCGs lay down the commercial terms for the contract. This includes timekeeper rates, alternative fee arrangements, and outside counsel’s obligations for reporting potential conflicts.

Establish a Relationship Manager

Designate lead contacts in both your in-house team and the external firm to manage the overall firm relationship outside of the context of individual matters.

These go-to contacts create an efficient communications channel, allowing opportunities to improve your business relationship.

Relationship managers should be conversant about the legal aspects of the work, but, more importantly, they should have strong interpersonal and management skills to navigate any conflicts or tough conversations about performance and costs. Their ability to understand and articulate the needs and goals of both sides can turn potential conflicts into opportunities for strengthening the partnership.

Request regular relationship reviews where you can provide feedback on the firm’s performance and cost-effectiveness at the macro level and inform them of your upcoming needs and priorities to help them deliver more value for you. These sessions are an opportunity to review the relationship holistically, beyond just the invoices and case outcomes, to ensure strategic alignment and satisfaction from your team and the law firm.

Trust us; they’ll be happy for the feedback and the opportunity to deepen their relationship with you. Establishing this open line of communication not only enhances the efficiency of ongoing projects but also lays the groundwork for long-term collaboration and trust.

Require A Budget for Every Matter

Setting a legal budget at the outset of each engagement is essential for managing legal spend and for having productive outside counsel relationships. Establishing a budget helps keep legal costs under control and serves as a critical planning tool for both the in-house team and the external firm, enabling better resource allocation and project management.

While it may seem awkward to discuss pricing upfront, open discussions about budget constraints and financial expectations help foster transparency, making it easier to address any financial concerns as they arise. And your firms will appreciate knowing where you stand on money matters instead of finding out when you feel they’ve overbilled, and they need to put a significant discount on the last invoice.

By involving outside counsel in budgeting discussions, you invite them to partner in cost management, encouraging them to think creatively about delivering the most value within your budget. This collaborative approach leads to more innovative solutions and a stronger, more trusting relationship between your organization and legal service providers. You can also use the opportunity of discussing the budget to explore the potential for alternative fee arrangements on the matter, providing further certainty on costs and expectations.

Requiring a budget also encourages regular communication about the progress of matters, allowing for timely adjustments if the scope of work changes. It’s a practice that ensures financial predictability and aligns legal strategy with business objectives, ensuring every dollar spent on legal services is an investment towards your company’s success.

Actively Manage Your Budget

After setting a budget for your legal matters, the next step is to manage that budget actively with your outside counsel partners.

Legal matters are dynamic, and changes are inevitable. So, it’s crucial to monitor your legal spend regularly. Hold regular check-ins with your outside counsel on each matter’s budget to ensure everything is on track. These check-ins provide an opportunity to identify budget overruns early and to discuss necessary adjustments with your outside counsel.

Legal spend management tools like Brightflag are invaluable in this regard. They offer real-time visibility into your spend, allowing you to monitor the budget closely against actual spend for each matter. For example, Brightflag alerts you when spend is trending over budget. That way, you can intervene promptly and discuss budget concerns with your law firms before costs escalate uncontrollably.

It’s important for legal leaders to not just focus on individual matter budgets, but to also consider the bigger picture by tracking legal spend in the aggregate. This means looking at overall spend, as well as analyzing spend by firm and by business unit. These more comprehensive views give you the perspective to make data-informed decisions about managing your legal resources.

By both assessing the budget in aggregate and diving into the specifics of your legal spend, you can uncover the root causes of budget overruns and take corrective action. Whether it’s a matter that’s become more complex than initially anticipated or a particular firm consistently exceeding budget without clear justification, having detailed data at your fingertips allows you to address issues directly and efficiently.

Active budget management, supported by robust legal spend management technology, empowers legal departments to maintain control over their finances. It facilitates a more collaborative and transparent relationship with outside counsel, ensuring that legal spend aligns with both the expectations of in-house counsel and the organization’s strategic objectives.

Streamline Invoice Review

Outside of budget management, consider leveraging technology to automate manual processes for your team and your outside counsel.

One of the most time-consuming tasks for corporate legal departments is legal invoice review. However, with the advent of legal e-billing systems like Brightflag, this process can be automated and streamlined, making it more efficient and less prone to human error.

One of the key advantages of using legal e-billing software is its ability to enforce outside counsel guidelines automatically. The system can identify and address guideline violations without requiring manual review, saving significant time and resources. It can auto-reject invoices that don’t comply with set rules and auto-approve those that do. This level of automation ensures that the invoice review process is efficient and consistent.

Legal e-billing tools serve your outside counsel, too. For example, Brightflag provides a vendor portal where outside counsel can submit accruals and access information about invoice approval and payment statuses. This self-service option benefits both parties; it simplifies the submission process for outside counsel and allows in-house teams to easily access the data they need, fostering a transparent and collaborative relationship.

Review Results

It’s important to regularly review the performance of your outside counsel to ensure you have the optimal mix of partners to serve the needs of your business.

Your review should focus on several key performance indicators, including:

• On-time submission of invoices and accuracy of accruals: Timely invoice and accrual submissions are essential. They reflect the outside counsel’s respect for contractual obligations and their efficiency in managing legal matters. Accurate accruals are critical for your accounting team and give you a real-time view into your legal spend.
• Billing hygiene: Billing hygiene measures how carefully outside counsel submits invoices that meet your outside counsel guidelines. Firms should provide clear, detailed narratives that meet your billing criteria.
• Budget adherence: Firms show they are good partners by setting and sticking to budgets on every matter. They should proactively recognize the potential for overrun and work with you to steer legal spend back under budget.
• Resourcing: It’s important to ensure that tasks are assigned to the appropriate level within the firm to avoid overbilling and to guarantee that individuals with the right expertise handle the work.

By leveraging the data insights gained from a legal spend management tool, legal departments can negotiate more favorable hourly rates and improve the quality of service they receive. This data-driven approach allows for informed discussions with outside counsel about their performance and areas for improvement. It also provides a basis for making strategic decisions about which firms to continue working with and under what terms.

In addition to these quantitative performance measures, your in-house team should systematically benchmark your outside counsel. This includes their communication, strategic advice, and overall partnership with the in-house team to ensure they add value beyond mere legal services.

You should hold quarterly business reviews to discuss performance, strategic alignment, and areas for improvement. Regularly reviewing the results of outside counsel spend and performance fosters a culture of accountability and continuous improvement. It ensures that outside counsel is aligned with the in-house team’s expectations and contributes effectively to the organization’s legal and business goals.

Finally, conduct panel reviews every year or two to ensure you have the right mix of partners and to identify opportunities to consolidate work with high-performing firms. Focus on cost-effectiveness and performance using data from your spend management tool. Also, consider scoring firms on diversity and inclusion metrics and other company initiatives.

Streamline Outside Counsel Management With Brightflag

Technology makes the management of outside counsel easier.

The right legal spend management tool helps you align your outside counsel with your expectations around billing practices, budgeting, and performance. It also creates win-win situations related to easy accruals submission, fast invoice review, and payment.

In addition, Brightflag generates clean, actionable reports and keeps you apprised of developing trends in how your outside counsel is performing.

Discover how Brightflag can transform your outside counsel management by booking a demo today—or check out our interactive product tour below.