Legal in-sourcing: the day of the billable hour is over

     The problem is hourly billing. The solution is legal in-sourcing. But it takes two to tango.   The dance partners must consist of a non-traditional lawyer and a courageous corporate chief legal officer.

     In “Billable Hour Under Attack, In Recession, Companies Push Law Firms for Flat-Fee Contracts,” by Nathan Koppel and Ashby Jones, the authors report that companies are ditching hourly fees because they provide incentive to rack up bigger fees. I remember when Nathan was on top of things at Texas Lawyer, and he is once again right on point for The Wall Street Journal. 

     According to a survey by management consultant Altman Weil, Inc., there was a “dramatic vote of no confidence from chief legal officers” to the suggestion that the major firms might be serious about changing their traditional hourly billing paradigm. Daniel J. DiLucchio, Jr., a principal of Altman Weil who has been providing management and consulting services to corporate law departments and law firms for 25 years, predicts that “in-house lawyers will assume greater workloads . . . and chief legal officers will need to become more strategic about triaging work, allocating resources, and, in some cases, tolerating higher levels of risk.”

     Triaging legal work! I love that term. That is what legal in-sourcing is all about. In litigation – even “bet the company litigation” -- the key is to get a great trial lawyer to lead the team. Then take as much of the routine work in-house as possible. The lead trial lawyer would not do such work anyway. So why pay his firm millions to do what can be done in-house for thousands? Why must getting “cover” for the CLO be considered risky? 

     The CLO must have the courage to break from the traditional hourly billing norm. Remember the saying: “No one ever got fired for hiring IBM.” That is part of the problem. A CLO might find “cover” by hiring a well-known national firm and the costs be damned.  The firm will likely insist that it do everything, from producing documents, to answering interrogatories, to file maintenance, at its usual and outrageously-high hourly rates. Nonsense. The firm wants to charge hourly rates for such work because it is profitable. More money for the lawyers, less for the client.  Most of that can be better done in-house. Outside counsel can direct the show, but the stage hands don’t have to be with their firm.

     Big-time litigation has become big business. It does not have to be. General Counsel: Take the routine work on big cases in-house. Engage a seasoned and experienced outside trial lawyer to lead the in-house work force.  Pay him creatively, not hourly. If it’s a plaintiff’s case, consider a contingent fee.   If it’s a defense case, come up with a retainer or performance bonus that will fix costs to a number that the company can live with. The General Counsel will be a hero to the CEO, who will please the Board, which will make the shareholders happy. 

     Hourly billing should be a relic of history.   This is the internet economy.  Let’s act like it!      

Legal In-sourcing: The answer to the "Value Challenge."

     I'm not a member of the Association of Corporate Counsel because I'm not an in-house counsel.  I am an advocate for affordable litigation, however, and I was delighted to learn from my friend Steve Matthews about the ACC and its "Value Challenge."  The challenge states:

ACC believes that many traditional law firm business models and many of the approaches to lawyer training and cost management are not aligned with what corporate clients want and need: value-driven, high-quality legal services that deliver solutions for a reasonable cost and develop lawyers as counselors (not just content-providers), advocates (not just process-doers) and professional partners.” 

     I totally agree.

     My firm advocates a litigation staffing model that answers the Value Challenge head on. In our website, we propose a solution that helps a company reduce the cost of litigation by bringing as much work in-house as possible. We call it “in-sourcing.” Forbes Magazine recently ran an advertorial about it. 

     The idea is that even in complicated cases, what the client really needs is the right trial lawyer in the courtroom. Much of the work that causes litigation to be so expensive, such as discovery, document review and production, and motion practice, can be handled in-house, by the client's own employees.

     In traditional hourly billing, everything is done by outside counsel and their staffs at very expensive rates. Starting salaries for baby lawyers are now as high as $180,000. Why should a corporate client pay hundreds of dollars per hour for the “education” of such lawyers at tasks that can be done better and cheaper by corporate employees?   The incentive should be efficiency, not opportunities for more hours and higher billings.   Outside counsel often charge millions of dollars to handle a single case. Is that really necessary? Certainly you need the right trial lawyer in the courtroom and to supervise your in-house staff on the case. But you don’t need all the extra baggage that usually comes with the services of a top-tier trial lawyer. 

     Unfortunately, we are not yet past the days of scorched-earth discovery and litigation tactics. Some litigants, encouraged by their hourly-compensated lawyers, refuse to play by society’s rules and get caught. A litigant and its outside counsel were recently sanctioned $4.3 million for “abuse of advocacy” in a patent case. Earlier this year that same litigant and a different firm were assessed $10 million for “misbehavior” in disregarding claims construction.  The Value Challenge sets a higher standard.

     So let's look at the Challenge again. What do corporate clients want and need?

“Value-driven, high-quality legal services that deliver solutions for a reasonable cost and develop lawyers as counselors (not just content-providers), advocates (not just process-doers) and professional partners.” 

     That’s what “Legal In-sourcing” does. Just hire what you need. Do everything you can in-house.  Get a high-quality, top tier trial lawyer.  Let him or her lead your in-house team one case at a time. Use his partners and staff only as necessary. Nurture talent and develop experience in-house. Use in-house staff to locate and produce documents, review documents produced by your opponent and make coding entries into trial software programs. Conduct legal research in-house. Write initial drafts of the motions, responses and briefs in-house. Take the routine depositions in-house. Use the trial lawyer and his staff only as necessary. We know that most cases get resolved before trial. Most of the labor-intensive work that is done before trial can be done in-house.

     The lead trial lawyer must, of course, remain involved at all times, but as a supervisor, not as a provider of the labor pool. This makes him and his firm true “professional partners” with the in-house staff on a case by case basis. 

     What does all this get the corporate litigant? Value-driven, high-quality legal services that deliver solutions for a reasonable cost, and develop in-house lawyers as counselors, advocates and professional partners. 

     At our firm, we call it “Legal In-sourcing.” It answers the “Value Challenge” perfectly!