The partnership between in-house and outside counsel is crucial to law department success. When communication is good, the attorneys on both sides of the relationship work well together toward common goals on their matters. However, when it comes to legal spend, their goals and motivations often are not the same. And the cost control conversation can be uncomfortable, even – especially – when there is a longstanding and well-established association. Procurement professionals are valuable team members who can help keep the attorney relationship focused on the law while ensuring that cost control is addressed.
On the latest episode of the Legal Leaders Exchange podcast, entitled Adventures and misadventures of managing budgeting and legal spend, our Nathan Cemenska spoke to Andie Lam, a legal procurement specialist at Novartis, about the important perspective and contributions she and her colleagues can offer.
The procurement incentive
In Andie’s experience, it can be easier for procurement team members to have success with cost control. In-house legal professionals are focused on their day-to-day contacts with outside counsel about the legal work itself. In addition to their concern for maintaining a good relationship with their law firm counterparts, at the end of the day, in-house lawyers at most companies are judged on the outcomes of their matters, making that their highest priority.
Procurement specialists, on the other hand, have cost control near the top of their list of priorities. Without responsibility for the legal outcome, they can focus on meeting the business’s financial goals. From the perspective of the law firm, any difficult conversations they may have with procurement about matter budgets, timekeeper rates, and other cost concerns, happen separately from the legal work and do not involve the client attorneys. As a result, when the company is able to involve the procurement team, both the bottom line and the partnership with outside counsel benefit.
Rate management mischief
Most legal operations professionals are very familiar with the annual notice from outside counsel firms about increases in their rack rates. Sometimes these communications come with a caveat that the firm is either keeping the same discount for the client or even increasing the discount to counteract some of the rate increase. When presented this way, the raising of rates might seem like a minor change.
However, when multiplied by the likely number of hours that will be worked over the course of the following 12 months, an increase that sounded very small can turn out to be significant. This is the type of calculation that a procurement professional is likely to do in this situation.
Andie and her team have tried at times to have law firms eliminate the mention of rack rates from their conversations, so far without much success. Naming a rack rate that isn’t the actual hourly charge simply reframes a negotiation in the law firm’s favor. Procurement staff has the necessary skills to interpret that framing and get to the heart of the proposed rate hikes.
A focus on billing guidelines
Novartis has a relatively mature program of legal billing guidelines and enforcement. But getting there wasn’t necessarily simple for the company. For some time, there was a set of billing guidelines in place, but there was no serious effort to enforce them, which meant that noncompliance was common.
Several years ago, the Novartis legal department began an effort to improve and enforce its billing guidelines. Their first step was to refine the guidelines themselves, ensuring conciseness and a focus on only the most critical billing rules. This was a painstaking process, both within Novartis and in tandem with their outside counsel. Communication is central to the success of billing guidelines because everyone involved must be clear about what is to be enforced. The Novartis team went through multiple iterations of communications at various levels within the organization and with the outside counsel.
After implementing the updated guidelines, the team created dashboards and reports to show the areas where compliance had improved, as well as those where firms were having more trouble adhering to the guidelines. It took about a year of work, with a high level of communication about specifics, before Novartis began to see acceptable levels of compliance. As a result, Andie cautions that companies embarking on a similar program should not expect overnight results.
To hear the full discussion or to read the transcript, visit the podcast page: Legal Leaders Exchange: Adventures and misadventures of managing budgeting and legal spend. If you are a podcast app user, be sure to follow our Legal Leaders Exchange show on your favorite app (Apple Podcast, Spotify, Google Podcast, Amazon / Audible.com, iHeart Radio), to make sure that you don’t miss any of our informative episodes.
