It will be on the to-do list of the newly hired outside counsel management colleague. Tackling the engagement letter ‘situation’. What is that ‘situation’ exactly and why does it need tackling at all?
There are a few good reasons to not wait too long with getting it under control.
Term
If little was done in the past, it is likely that most ongoing engagements run on a paper provided by the law firm that expires at the end of every year. That immediately jeopardizes any attempt to get costs under control because you will find yourself having to re-negotiate with the law firm on an ongoing matter every year. Negotiating with your heart surgeon is what we used to call it.
Get standard multi-year agreements in place with your law firms that have terms that run from the execution date of the engagement letter. This moves your re-negotiation schedule from yearly to every two to three years. It also moves you away from year-end only negotiations to a more manageable spread across the year.
A large organization is often in the habit of working with many law firms. The engagement letter ‘situation’ should not eat up all the time of the outside counsel management team.
Compliance
Sooner or later compliance will let you know what they think of the legal department managing third party relationships with hundreds of non-standard, annually expiring agreements. They will not like it. If you have a standard engagement letter for all engagements with law firms in place, it can include anything that is needed from a compliance, IT security, and regulatory perspective.
Sometimes these endless annexes companies come up with, may need a little tweaking. A law firm is not likely to run a sweatshop and may therefore push back on that specific wording in the sustainable supply chain annex. But annexes about IT security, data privacy and anti-bribery and corruption apply to law firms as much as to other third parties your company works with. Get them all in there and make compliance happy.
Billing guidelines and billing instructions
The engagement letters law firms send over, will likely have sufficient wording around liability and confidentiality. They are less likely to include much detail about billing – other than that they will mail you an invoice every month and they are due upon receipt.
Having a standard engagement letter allows you to include billing guidelines and instructions specific to your company. Let the firm know what kind of expenses you will not accept, how you want them to staff your matters, how to submit their invoices and what details to include. Don’t forget to add the payment term. Most finance systems will struggle with many different invoices with different due dates.
When you are ready to do serious invoice audit, the billing guidelines will form the basis to reject billing that is not compliant. So, even if you think the organization is not quite ready for full on invoice audit, better to get the guidelines in place anyway.
Conflict handling
Technically conflicts of interest are not your problem. The firm has the conflict, and they have the obligation to avoid it or get a waiver. Having said that, setting some clear expectations about what you consider a conflict can be helpful. Rules and regulation on what constitutes a conflict of interest for a law firm, vary from country to country. You can let the firm know what you think is a conflict of interest and I’m sure the firm will not be shy to let you know if it works differently in their country.
Another thing to include is clear guidance on how you want firms to deal with conflict waiver requests. These can bog your team down quite bit if not managed properly and they can pose a risk if not managed centrally. So, it is likely to land with outside counsel management one way or another.
These should be sufficient reasons to embark on the – admittedly formidable task – of getting all the firms on your company’s standard engagement letter.
A few pitfalls to avoid that will help you getting there quicker.
This is not about cost saving, yet.
As also mentioned in this earlier article try not to get bogged down too much in discussions on hourly rates. The goal is to set the rates for at least two years, so you don’t have to re-negotiate next year. Also make sure you get the rates in a standard rate card format, so you have something to put in your billing system that allows you to compare firm rates in an easy way.
Focus your efforts for cost savings when creating panels and when you have an actual engagement for the firm.
This is not about individual engagements.
Treat the engagement letter as an umbrella agreement that covers any engagement from any branch of the firm, coming from any area in your company. That means that the definition of your company in the agreement needs to be broad enough to include all subsidiaries and affiliates. The specific entity can be established on an engagement level. That’s also when the firm can do a final conflict check.
Larger firms, on their side, need to make sure that any branch in their network you may want to use is covered by the engagement letter. Keep them to their one-stop-shop promise, proudly featuring on their website.
This is not about being clever.
If you are negotiating the engagement letter and billing guidelines with many firms, it is better to take an industry standard letter as a starting point and add your company’s specific clauses and annexes. The more recognizable the terms are, the easier the firm is going to sign up because they did for other clients.
Ultimately the agreement between you and your law firm is not likely to be a very high-risk agreement so this is not a time for legal high jinks. Getting the agreement in place is more important than replacing ‘will’ with ‘shall’ and back again. Treat it as a re-papering project more than a negotiation.