Frustrated with soaring outside counsel costs? Here are a few ways to keep it under control.
Contrary to common perception, companies typically don’t like dealing with outside legal counsel, let alone paying them hefty sums of money. Monitoring outside counsel costs can seem like a drag, especially when the legal fees rack up over time, but it’s a crucial consideration – and the best way to manage the expenses is for the in-house lawyer to take a deep breath, step up to the plate and do so actively.
Is this really possible? ‘Yes, in-house counsel should be involved in this process,’ answers David Paige, managing director and general counsel of Sterling Analytics, an analytical, research and advisory firm. ‘The importance of controlling legal costs becomes obvious when you look at how many companies spend hundreds of millions of dollars on large litigations and ongoing liabilities. Outside legal costs are considered by many in-house counsel to be largely uncontrollable.’
Paige, a veteran lawyer who has spent 26 years as a practicing attorney and has previously held positions as a managing partner, general counsel and chief operating officer, found that companies overpay their outside counsel by an average of 20 percent over submitted costs. Total annual outside legal costs may run from $2 million to $50 million and beyond.
But have no fear, assures the cost control expert – these firms remain an important arm of any corporation, and there are ways to keep their costs down.
‘Outside counsel are essential for providing expertise and scale. Corporations often do not have the resources to maintain that specialized expertise for one or two cases per year,’ Paige notes. ‘However, given that many corporate executives have fewer resources than they’ve had before, it’s easy to become overwhelmed by huge litigations and it takes determination to make the decision to control this problem rather than just tolerate it. It’s important to get started as soon as possible.’
Paige provides the following advice on how in-house counsel should balance expertise with managing finances:
1. Undertake an objective analysis of your current situation. ‘This would be similar to having a checkup to help determine how far off a corporation’s outside counsel costs are compared with industry standards. It involves looking at monitoring protocols, billing guidelines and the total spent for outside counsel, and comparing those expenses for similar companies.’
2. Learn about the best practices used by other companies and create a plan. ‘The idea, given that you now know where you stand, is to examine previously tried methods and understand why they were not successful.’
3. Execute a new plan, which involves changes to your internal controls. ‘In many situations, companies have vague or no billing guidelines that outside counsels agree to,’Paige explains. ‘In instances where billing guidelines do exist, there may be no real monitoring of compliance with them. It is important to obtain agreement with outside counsel concerning the rules going forward. It can be a collaborative process.’
4. Monitor actively. Once you’ve revamped your billing guidelines, direct discussions become possible, says Paige. ‘The outside legal firm must be aware that in-house counsel will be monitoring its expenses. This is essential because the above steps won’t work unless they are being enforced.’
So there’s hope for meeting the challenge of controlling outside litigation fees – but it’s up to you to remain vigilant and stick to your plan.
