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Why You Should Care About Demand Management

If your organization is serious about wanting to control legal spend, everyone involved needs to have a much better understanding of what is driving the legal costs.  

By that I don’t mean looking at the law firm’s invoices. That’s after the fact. The organization needs to understand what happens when the idea of engaging outside counsel rears its head. How that moment is managed is key for the outcome of the engagement and the costs.  

 A few things I find myself explaining repeatedly that may seem obvious to you.  

 1. Sometimes you just need a law firm 

 Much is made of the make-or-buy decision and rightfully so. To use an extreme example: the legal department that just pushes out work to law firms because they are too thinly staffed, is obviously not managed well.  

Having said that, most of the time a law firm is needed, it is for perfectly obvious and legitimate reasons. Litigation, legal opinions, high stake investigations under privilege – I can go on, but I don’t think I need to. The clearer it is to the organization which matters always go to outside counsel, the better it is. De-mystify the make-or-buy decision by clearly saying: these things we do in-house; these we cannot and should not.  

With this you achieve two things: you break the endless cycle of explaining the obvious to the organization. And when you find there is an area where it is less obvious to go to outside counsel each time, you can have a discussion on how it could be handled in house and plan for it.  

 2. In house counsel selects

Although I’m a big proponent of applying sourcing principles to outside counsel engagement, there should be no discussion about who selects the right firm for the job.

This may be obvious to anyone in legal but to a sourcing organization that is used to deciding for the whole organization what software is being purchased, this may come as a surprise.  

My advice to any starting OCM manager: get that settled in your first month. The sooner sourcing realizes that the ultimate choice is not theirs to make, the better. Better to set the expectations right than to have the frustration down the road.  

With that base principle set, you can start working on where sourcing can add value in procurement and contracting. 

 3. The legal department manages the engagements, but does not always carry the costs  

Maybe another open door for those who made it this far but still worth mentioning because it is an oddity.

Let’s say the business needs a consultant to work on a project. The relevant business unit works with sourcing to get the consultant company hired and then manages the consultants. They check the bills sent by the consultant and manage the budget.   

When the same business receives a writ of summons, they reach out to legal. Legal tells them they are going to engage outside counsel and the business needs to pay for it. “Can you please give me a cost center? Thanks”. “What’s that…? Eh, no, we don’t know how much it is going to cost exactly. That depends. No, you don’t get to select the firm. No, you are also not reviewing the invoices, we are. We’ll let you know how it goes.” You can see how that could be a somewhat unsatisfactory conversation for the business to have.  

The more transparency you can provide up front on the need for outside counsel, the expected costs and what is driving those and how in general you are going to manage the engagement, the better the choice will be understood, and the cost will be accepted.  

 4. Engaging the firm and managing the engagement is not just picking up the phone  

So, we have seen that legal gets to select the law firm, gets to instruct the firm on the matters on behalf of the organization and gets to manage the relationship with the firm including the costs. With this come responsibilities vis-à-vis the organization and the business that is paying for the firms.   

To manage that responsibility, it is key to have a system in place for demand management. What happens when the question of engaging outside counsel comes up? The answer cannot be that in-house counsel just picks up the phone and calls the law firm and hopes for the best. 

Have a system in place that manages the situation and records the various decision that need to be made: 

  • Make-or-buy?   
  • Cost center  
  • Firm selection  
  • Fee structure and budget

 

Capturing these and other required steps will help clarify where money is spent. Not only will this help the organization understand, before you know it, you can start steering your costs based on the information collected in the process.

Alexander de Nerée

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