The corona pandemic is causing turmoil worldwide and has had a massive impact on economic activity. Internal legal departments are therefore facing new challenges. On the one hand, companies are cutting their budgets for legal services, and on the other hand, the complexity and amount of legal issues is increasing. In-house lawyers have to minimize their costs while also reducing the work pressure on their teams.
Especially in times of crisis, legal departments question their cooperation with external law firms and look for flexible, efficient and timely solutions for legal issues. In the following, we will discuss the criteria companies might use to select external legal advisors, how outsourcing of legal services can be more cost-efficient and how corporate lawyers and law firms are developing a common agenda.
Changes on the corporate side
In general, the last few years have seen an increase in legal work and complex new issues for in-house counsel. This is mainly due to general corporate growth. In order to deal with this additional workload, corporate lawyers rely on the in-depth expertise of external law firms. The Covid-19 pandemic has shown that companies are now under even greater pressure to deal with growing legal risks while at the same time increasing their efficiency. Complex legal requirements also stress the need for legal advice.
The constantly increasing cost pressure within companies requires effective cost management when hiring external law firms. This means that legal departments have to deliver a higher performance with reduced budgets. Law firms are therefore challenged to produce better, faster and cheaper solutions to complex legal issues. In order to achieve this, legal departments are forced to constantly optimize their operational framework when cooperating with law firms.
As a result, the purchasing departments of large companies have recently been more involved in the processes of cooperation with external law firms. They support the General Counsel in operational tasks such as the selection and purchase of legal services as well as the subsequent management of the commissioned law firms. Overall, these processes have become more professional, as companies have become more demanding and attach great importance to increased efficiency.
The higher expectations towards external legal services are mainly a result of the positioning of the General Counsel within the company. His role has continuously gained in importance, as he reports directly to the management and is seen as a businessman with legal expertise. In addition to legal assessment, he is also expected to make economic decisions. One of his numerous tasks is to increase the efficiency of the legal department and at the same time minimize the costs of external legal services.
Selection criteria of companies
The procurement of legal services by companies has changed in various ways in recent years and will probably continue to do so. In particular, the selection process has become more differentiated and professional. Companies not only select on the basis of professional competence, reference, recommendation and reputation but also include many other service criteria in their decision such as communication skills, soft skills and the use of project management expertise. Companies attach great importance to continuous training in these areas. Additionally, they expect law firms to integrate their knowledge in these areas into their daily work while collaborating with companies in order to deliver the best possible result for the client.
The use of new technologies, such as legal tech tools, to increase efficiency is also very welcomed by companies. In addition, it is especially important for internationally operating companies that the firm brings global expertise and recognizes economic connections between several countries. In the context of selecting a law firm, many General Counsel emphasize that the diversity factor in terms of cultural diversity and gender as well as the issue of ethical standards also play a major role. In general, other criteria such as creativity in the context of alternative legal solutions and flexibility in dealing with short-term problems are also important when selecting external legal advice.
Cost-efficient outsourcing of legal services
The COVID-19 pandemic has increased the pressure on corporate legal departments to offer external mandates at lower costs while maintaining high quality. In addition to the selection criteria explained above, the core aspect of mandate allocation is the remuneration for legal services, as legal departments are increasingly struggling with budget cuts on the one hand and increased demand for legal expertise within the company on the other hand.
For this reason, companies are increasingly preferring alternative remuneration methods such as installments, fixed flat rates per project or per month for legal work. These billing models give companies greater planning security.
Often these offers are more favorable than billing via hourly fees. The preliminary cost estimate varies depending on the volume of the assignment and is worked out in a dialogue between the company and the law firm. In many companies, the purchasing department is involved in these rate negotiations, the scheduling of projects and invoicing. The purchasing department also supports the general counsel in controlling the projects and monitoring the costs.
For law firms it is important that the task descriptions and the project volume are clearly defined by the company in order to provide a realistic cost estimate. This enables external legal advisors to calculate more accurately even for complex mandates, which increases overall efficiency and benefits both sides.
During the cooperation between the internal legal department and the external law firm, a common agenda, a constant exchange and a clearly communicated expectation management is important. Even before the start of the project, the company must express its ideas about the handling process, reaction times and the urgency of its request and, above all, clearly state its expectations to the external consultants. The respective contact persons and representatives are also determined in advance to ensure transparency with regard to the responsibilities and organizational structures on the firm as well as the company side.
During the collaboration process, constant communication between the two parties is important, This can be ensured by means of fixed jour fixe appointments. Effective communication also includes continuous updates on workload and project progress. Companies also expect external lawyers to proactively provide their clients with additional information on relevant legal issues beyond the project. With these or similar initiatives, external consultants can secure long-term cooperation. A regular evaluation of the cooperation leads to a more efficient work process, which provides added value for both the company and the external consultants. In conclusion, it can be said that incentives for working as efficiently as possible are provided, especially in the case of performance-related remuneration or installment payments per project phase.