When should in-house lawyers consult external counsel?

Law Society Gazette - Monday 12th January 2015

By Lucy Trevelyan

The in-house lawyer is the ultimate jack of all trades. Naturally required to know their company’s core business inside out, they are also expected to be instant experts on diverse legal fields depending on their company’s needs: employment law if an HR issue crops up; property law if the company decides to expand or move premises; or litigation if problems arise. And that is before they get to the risk management or corporate governance issues which take up an increasing amount of an in-house lawyer’s time.

Mike Koniarski, company solicitor for third-sector organisation A4E, says: ‘If anything happens, someone in the company will say “have a word with the legal man”. I am the company’s sole solicitor so I have to have that general ability to tackle anything that comes along.’

Whatever the size of your organisation, says Koniarski, it is a big part of an in-house lawyer’s job to assess whether a problem can be handled in-house, or if it is outside the scope of in-house expertise and therefore needs external help.

‘If something more specialist happens – such as commercial litigation – you might start looking to farm that out,’ he says. ‘Often this will save you time and money, but you have to decide fairly quickly whether to go down that route – the last thing you want is for your company to have something it needs doing, and half way through you say you have to put it out.’

James Watson, director of legal affairs at Ascent Media Group, says that when it comes to getting the right blend of in-house counsel and outside legal expertise, there is no right answer: ‘You need people on the ground that are fully integrated within the business and can proactively identify areas where they can add value, both legally and commercially. However, there will be times when you need additional or specialised resource. That is when we tend to look to outsource.’

When weighing up the core internal legal skills you have and assessing what you can achieve, argues Watson, it is important to have individuals who understand the business, and who are strong enough to deal with its varying demands, even when those are in conflict with legal requirements. ‘That said,’ he adds, ‘they have to be respected by the business enough to be involved early in the process.’

First Law, says the best mix is one which balances the expertise and resources of the in-house counsel with the specialist skills of the outside help: ‘The legal skills of the in-house function are made up of the collective experience and expertise of the in-house team. The team leader in the legal department should be aware of the skill sets available in-house and will delegate work appropriately.’

Each counsel knows their limits and will seek external advice if a matter is outside their competency or if they have insufficient internal resources. ‘In this sense the role is like that of a general practitioner referring specialist cases to a consultant,’ he adds. ‘I have recently assisted a large housing association to set up a new in-house legal function and recruit and appoint a new legal counsel. The reasons for this decision were to make more intelligent use of the external resources available and to save costs by servicing routine legal issues in-house.’


Day in, day out
Anthony Dixon, general counsel and company secretary at Pace, says the key is to decide what the core legal work is that will be performed in-house.

‘Usually, core work is that most associated with the business that is supported, and where in-house lawyers can build close working relationships/specialist knowledge and be readily available 24/7.’ You need to employ enough in-house lawyers to perform the core work, he argues, and if possible, the lawyers who form your succession plan, to provide continuity in core work.

What is left, he says, is the work that goes outside; core work which is over capacity; and specialist work which only arises occasionally where there is little or no in-house expertise.

When choosing external lawyers, says Viv Williams, chief executive of the 360 Legal Group, one should look for larger teams with specific disciplines that will complement the in-house team. But, he adds: ‘The old premise of “people buying people” should not be ignored. Many processes require a tender to be submitted, but cost should not be the sole driver of the decision-making process. Teams that work well together will be far more productive than those that don’t.’

Fitzgerald agrees: ‘If we are talking law firms, you look at size and resources, together with reputation; but above all, a good working relationship with the client partner helps. Law firms are not the only option though – I also use consultants who fill in gaps when necessary.’

Dixon says that if the law firm in question is a recognised name you can assume a level of technical competence and skill. He adds: ‘Personal contact or introductions are important, but I am most impressed by proactive lawyers who try to be closely involved with what is going on in your business as well as have a mastery of their specialist legal area. The ability to communicate easily and be relaxed in negotiations is important.’

He says that the relationship between in-house counsel and external law firm should be friendly and cooperative, but also business-like: ‘There should be an engagement letter setting out expectations, but an ongoing degree of personal contact with a relationship partner in the external firm is most important. The firm should set up a system of sharing internal news items/publicity that affect client and firm.’

After each matter is completed, Dixon advises, in-house counsel should obtain feedback from others involved in the matter which is then fed back to the external firm.

Measure for measure
Koniarski says that when choosing external advisers, you have key performance indicators on matters such as price and reputation, ‘but it is also about how people like myself feel – that personal element is very important’. Also, the choice of external legal advisers for specific projects, he says, is to a large extent driven by what is required at any one time. For his business there are global considerations: ‘We have recently opened in Australia and what we did was tap into the international expertise of our external advisers here in England.’ Given the time restraints, he decided it was better to use those he knew rather than trying to see who was cheaper and go through a full tendering exercise.

‘The global arm of a firm is a driving force for us,’ explains Koniarski. ‘As happy as you are to look at a national, more local firm, if it can’t deliver globally that might put us off.’

A move away from hourly charges to more fixed-fee work should be encouraged, says Williams: ‘A growing number of firms are prepared to charge project-based work at a fixed price. A specific project should be costed and the price agreed in advance wherever possible.’

Since the effects of the recession began to bite, says Williams, there have been many challenges on costs, and many law firms have reduced their project costs just to cover overheads – in effect, buying turnover. ‘Many state that some of this lucrative work has gone for good and many businesses have utilised internal skills to reduce their external spend,’ he adds. ‘The recession has had a huge impact on external demand. Core activities have generally remained unchanged unless there have been significant changes within the industry sector, such as redundancies. Many businesses have already anticipated a reduction in their external requirements.’

Although the recession has led to many legal departments being trimmed, says Watson, deals continue and there is additional pressure on external legal spend. ‘As always it is a question of getting maximum value for money from your internal and external resource,’ he says. ‘There is some scope for securing better rates, although we continue to measure the overall value of the advice rather than get hung up on hourly rates.’

Price point
First Law notes that a comparison of tendered rates from 2006 and 2010 shows only a very small increase over that period in terms of hourly and fixed rates, which is well below the rate of inflation. ‘We have even successfully negotiated an additional 5% reduction in rates in the last few weeks for one client on the grounds of the continuing recession,’ he adds.

Achieving buy-in for legal spend from company boards depends on the structure of the legal department and its relationship to the rest of the business, First Law adds: ‘Boards like certainty on finance matters. In the organisations I have been involved in, advance budgeting for legal costs has become more common. This involves analysing historic expenditure and setting limits on future spend accordingly. It places the responsibility on in-house counsel to keep within budget.’

In the current economic climate, says Koniarski, law firms are working harder on client care: ‘They’ve got no option but to do so. Three years ago, before the credit crunch, I would suggest that some firms were not 100% on client care, and one in particular – which shall remain nameless – was not good enough for us. We had a retainer – not for a specific job – but they fell short of requirements on price and approachability. With one phone call they are off the books.’

As with any contract, he says, if an external legal adviser doesn’t meet certain requirements you want something done about it: ‘For example, we had one where the indemnity insurance limit was not to our liking. We had to negotiate a revised figure for the level of indemnity.’

Talking point
The key element of client care, and ensuring your relationship with the external legal team is working effectively for you, is communication, says Koniarski: ‘You can have all sorts of systems and checks and balances in place – whether electronic or otherwise – but it’s all about communication: if they don’t have the willingness to provide input it can all fall down.’

New technology can help to improve the relationship between in-house lawyers and external law firms, says Watson: ‘Larger law firms can leverage their size by providing, for example, virtual data rooms. Webinars are also a useful resource, allowing in-house counsel to take training without the travel and at a time of their choosing.’

First Law insists he has noticed a huge change in the use of new technology by lawyers, the most dramatic difference being the use of email for the majority of correspondence: ‘Over the last two years, I have made use of advanced spreadsheet functionality and online databases to manage large quantities of data on external lawyers for use by in-house counsel. This software enables clients to undertake like-for-like price comparisons between competing firms, invoice and fee note checks, and advance budgeting for typical instruction scenarios.’

However, says Koniarski, modern technology does not necessarily help improve the relationship between in-house lawyers and external advisers: ‘What’s important is people being prepared to pick up the phone or come to our offices to attend a meeting when required. It’s a question of attitude. If a lawyer’s attitude is right then modern technology can help, if the attitude is not right, no amount of new technology will help.’

He explains that he had a weekly reporting schedule for one of his projects ‘which was fine’, but notes the reporting format wasn’t properly understood on either side ‘so errors emerged in the completion statements and it took a series of meetings to get it sorted’. He adds: ‘A few times on the phone to our external lawyers I’ve said “I’ll come to you” and they’ve said “no it’s fine, we’ll come to you” – it’s that willingness to go the extra mile that is important.’

For in-house counsel, focused as they are on risk management and tight budgets, external counsel who understand the need both to control risk and costs will have a competitive advantage over those who do not.