David Paige has spent 26 years as a practicing attorney. As the managing director and general counsel of Sterling Analytics, he has found that corporations overpay hired outside counsel by an average of 20 per cent over submitted costs, and that total annual outside legal costs can run from $2 million to $50 million or more. Paige recently sat down with Corporate Secretary deputy editor Aarti Maharaj to discuss how corporate secretaries can work to lower outside counsel costs.
1. Why is managing outside counsel costs essential?
In our experience, if such costs aren’t managed properly, they can inflate to anywhere between 20 and 40 per cent over what they should have been. This is because most attorneys will not discipline themselves to follow billing practices to the same extent that they would if a corporation used recognised industry best practices.
For example, in many litigations and transactions it is customary to prepare binders and summaries of work that is being done. This is like clerical work, but there are many occasions where associates are given this type of work to do. This is a very typical way that firms can overcharge.
The other thing that can drive up costs is the inclusion of overhead charges – for instance, I found that a law firm was charging for someone to stand at a computer and hit the ‘Print’ button, and I have seen similar charges on bills for the time it took someone to scan some documents. These clerical tasks should be paid out of the lawyer’s hourly rate as part of the law firm’s cost of doing business.
2. What should corporate secretaries know when it comes to managing outside counsel costs?
It’s all about not budging once a stand has been taken on cost control. Outside counsel need to be given extremely clear guidelines as to their billing expectations, and should be told that they cannot raise rates without permission. Also, outside counsel should know that the company will not pay for certain types of charges. Moreover, outside counsel should sign off on these guidelines, which then become contractual obligations on the part of the law firm. Once the guidelines are signed off, the corporate secretary should consistently monitor them for compliance – law firms won’t follow the guidelines unless they know corporations will enforce them.
3. How should a corporate secretary monitor law firm guidelines for compliance?
Most corporations use e-billing software that processes the bills that are received by law firms and does an initial check on compliance. It’s also important for trained inside auditors to look at the bills and compare them to the guidelines periodically, in order to make sure there is compliance for that portion of the guidelines that cannot be monitored by software. If the guidelines require that the qualification of a lawyer correspond to the task, it’s hard for a computer to see.
Another option is to conduct a deep audit. Outside counsels need to understand that they will be audited from time to time so they are left with no other choice than to comply.
4. Do companies need to have both an outside and in-house counsel?
Unfortunately most corporations cannot reasonably maintain internal counsel to represent the company on all possible matters that might arise. If a case takes place outside your area of expertise, you’ll need an outside litigator who can deal with the issue.
5. Does the changing regulatory landscape have an impact on these costs?
Yes. As the rules change, corporations have an obligation to remain in compliance. The best way to keep up with rule changes is to utilise the services of law firms who specialize in these areas. Some law firms have very specialised lawyers who constantly monitor these changes and can give timely and sophisticated advice. The downside is that these firms are expensive. As regulations change, outside counsel are needed more frequently, but their fees have to be controlled.
[Article by Aarti Maharaj, Corporate Secretary]