10 Effective Outside Counsel Guideline Practices for Strong Operational Relationships

For in-house legal departments, relationships with Outside Counsel are integral to the overall management of matters and outcomes. A solid relationship creates synergy and partnership; a dysfunctional one creates frustration and typically increases costs. One of the most common tools to enhance client/firm relationships is setting Outside Counsel Guidelines (OCGs).

Maintaining some variation of OCGs is a common practice these days, but setting comprehensive and clear guidelines is less prevalent. Having drafted many OCGs in my career, I have a strong perspective on their purpose and the approach to take. Here are some pointers for drafting effective OCGs:

1. Use OCGs as an Instruction Manual not an Engagement Agreement: Law Firm engagement agreements and OCGs should work in tandem to establish the relationship with your law firms. Both are documents reflecting mutually agreed upon contractual obligations. However, there should be distinct differences between the two: The engagement letter outlines the terms associated with representing the Company (i.e. conflict process, liability, IT security requirements and pricing); and the guidelines explain what is expected in the operational aspects of the relationship - invoicing, staffing of matters, what constitutes billable work and cost management methods (i.e. accruals, budgets).
   
2. Be Clear & Simple: Don’t overcomplicate the instructions. Highlight the most important aspects and provide details of what is required/accepted and what is not for each topic. Focus on areas such as:
   1. Methods of submitting invoices (e.g. eBilling tool, PO process) and requesting rate increases (specifying timing and limitations)
   2. Acceptable and unacceptable types of work (e.g. doing research, training, clerical) and billing behaviors (e.g. forbidding block or embedded billing, requiring narratives)
   3. Staffing requirements (e.g. change notice, alignment of task/level with experience and matter complexity)
      
   4. Non-Billable items (e.g. phone, unapproved travel, online research tools)
   5. Invoice Requirements (e.g. frequency, format, approved fees/expenses)
   6. Budgeting Expectations (e.g. by matter, frequency, and updating budgets)
   7. Accrual Submission (e.g. define accruals, deadlines, and timing, matter vs. firm)
      
3. Be Mindful of Practice Area Differences: Most instructions found in OCGs apply across practice areas. However, sometimes there are nuances, and specific instructions should be provided for practice areas that have the biggest impact on spend. For example, if your department has a lot of litigation or E-Discovery, be specific about how matters should be billed, such as use of UTBMS codes. Also, I recommend requiring the use of approved third-party vendors (i.e. E-Discovery or translation providers), leveraging bargaining power to control costs. No longer should you just accept any pass-through costs. In my experience, the practice areas that may need specific guidelines are Litigation, Intellectual Property and M&A.
   
4. Be Mindful of Global Differences: Most instructions found in OCGs apply to U.S. law firms. However, sometimes there are nuances, and specific instructions should be provided for legal services that will be provided by law firms based outside of the U.S. Consider providing instructions related to selection of Corporate Entities, VAT Tax Currency. For example, intellectual property practitioners often work with a network of law firms located around the world – typically in countries where the company files patents and trademarks. In these cases, the OCGs might need to address currency and the cost of currency conversion.
   
5. Leverage Company Policies: Don’t re-create the wheel. If your company has travel and expenses policies, incorporate them into your OCGs. Remember, the firms should not be given more latitude than your own in-house team.
   
6. Communicate & Train: Communicate to firms early and often when you’re getting ready to launch (or revise) your guidelines. Giving firms enough time to digest, disseminate and implement the guidelines will help ensure their compliance with your expectations. You want to make sure that everyone working on your matters understands the guidelines. Consider hosting sessions for the billing coordinators to highlight key aspects, and maintain the dialogue with occasional update sessions (e.g. quarterly).
   
7. Request Value-Adds: Enhance the firm/in-house relationship by creating opportunity for knowledge sharing and thought leadership. Many legal departments leverage firms to provide CLE programs to new or key legal topics. More advanced vendor management programs have Legal Departments hosting an OC Summit where your top firms (partners and key personnel) come together to discuss business objectives, legal department goals and challenges to the legal landscape. This initiative creates a mutually beneficial opportunity to share perspectives and insights on how best to partner and represent the Company.
   
8. Enforce & Provide Feedback: Ultimately, the guidelines are only truly effective when they are enforced. To achieve that, all members of the in-house legal team, including lawyers, should be familiar with the guidelines, especially if they are invoice approvers. If you don’t want to be billed in a specific matter, or were charged for something that is not allowed, provide immediate feedback to the firm. It is helpful to leverage eBilling tools and/or third-party invoice reviewers to ensure compliance to the guidelines. More mature Vendor Management programs feature an annual review with a scorecard-based evaluation that includes scores on compliance to the OCGs.
   
   Learn more: How to Get the Most out of Your Legal Billing Data – Fostering Transparency and Collaboration to Better Align Expectations.
   
9. Revisit & Update: OCGs should evolve as your Vendor and Spend Management program matures. For example, you initially might not be leveraging alternative fees (AFAs), but one or two years later you may be (a) leveraging a RFP tool; (b) established a preferred law firm panel; or (c) have adopted software to facilitate the relationship with outside counsel. Naturally, your guidelines should reflect these new processes, tools and approach. I strongly encourage updating guidelines at least every 18 months.
   
10. Set the Tone: The overarching approach to OCGs should reflect your company and legal departments’ goals and culture. They are a tool to enhance the relationship and are not meant to be adversarial. Rather, the OCGs should create an opportunity for discussion and partnership with your firms.

Having an effective OCG process is key to building relationships with Firms and managing spend. Drafting effective OCGs should be a proactive process and opportunity for your in-house legal departments to align expectations with firms and to enhance future business decisions.