Category Archives: Legal

Legal Sourcing 101

A recent article in ISM on “crashing the legal department” had some great advice on what you need to do when helping your General Counsel source legal services.

  • You must take the lead in proposing alternate fee arrangements.
  • You must take the lead in finding out what “XYZ” task really costs.
  • You must figure out how waste can be driven out of the system.
  • You must insure that the firms you select can get your rates with the product and service providers they could also make use of.
  • You must help to quicken the death of the billable hour.

For more advice on how you can help decrease legal costs, see:

… here on Sourcing Innovation and

  • e-Discovery + e-Sourcing = e-Normous Savings
  • e-Discovery Stage 1: Ending the Cold War
  • e-Discovery Stage 2: Understand the Risk Profile
  • e-Discovery Stage 3: Execute with Efficiency
  • Sourcing Legal Services Gaining Momentum

… over on e-Sourcing Forum.

Share This on Linked In

Can Good e-Discovery Tools Really Reduce Your Legal Fees?

Or will they just instill over-confidence and end up costing you millions when you lose the case and have to pay a huge award for damages?

It’s a good question, and the first one I asked after reading this article in Integrated Solutions Magazine on how “e-Discovery is not just for lawyers anymore”. The article, which points out that Gartner’s recent report on “E-Discovery: Project Planning and Budgeting 2008-2011” found that one gigabyte of data can result in $18,750 in legal review costs, makes a good point when it notes that outside e-Discovery can be very expensive. It also makes a good point when it notes that you’ll likely have to pay considerable legal fees regardless of the outcome of the case. But what it doesn’t ask is what happens if doing it yourself fails to turn up that one piece of evidence that could win the case for you? Even if you had to spend an extra 100K, that’s still a lot better than losing 1M, 5M, or even 10M!

While I loathe paying extravagant legal fees as much as the next guy for something I could do myself for much less than a big-name law firm will charge me, there’s a difference between writing your own contracts and trying to defend yourself in a trial where millions are on the line. And that’s usually where e-Discovery comes into play.

What I believe you should take away from this article is that modern e-Discovery tools are much more powerful, and much cheaper, than they were years ago and that it doesn’t cost your law-firm $200 an hour for legal review when these tools allow para-legals, who make less than $30 an hour, to do the initial culling which produces documents that are then reviewed by junior associates, who make less than $50 an hour. (And I’m being generous with both numbers, especially considering the number of hours new associates are expected to pitch in. There’s a reason some people think law firms keep the cot industry in business.)

Then, your procurement department should be using this knowledge to aggressively negotiating the amount you pay for each service performed by the law-firm. Force them to break down services on an itemized bill and insure that you don’t pay more than, say, a blended rate of $65 to $75 per hour for legal review (with the exact amount dependent upon your local market), just like you don’t pay 20c a page for copies or $500 an hour for basic services (like filings) that an associate can do for (significantly) less than $150. It might still cost a bit more than doing it yourself, but considering the cost of the risk that you will be mitigating, I think it’s worth it.

Share This on Linked In

Shared Legal Services: Risk vs. Reward

The Shared Services & Outsourcing Network recently ran a great article by Leland Forst of The Amherst Group Ltd on mitigating risk when implementing legal shared services that I see as a must read for anyone considering the consolidation of their legal function into a shared service organization.

Most organizations outsource traditional back office functions like Human Resources, Office Management, Accounts Payable, and even invoice management because a specialist organization, that can leverage expertise and shared services, can often do these tactically-focussed functions better, faster, and cheaper when the right processes and controls are in place. Well, unless your primary revenue stream is litigation or IP licensing, these days, legal is also a back office function and one that should be considered as eligible for a shared-services outsourcing model because, as the author points, out, it can:

  • provide lower fees through economies of scale,
  • provide volume leverage to negotiate lower hourly rates with external experts,
  • allow you to scale up or down as required without expensive recruiting or severance costs,
  • provide you access to more subject matter expertise,
  • improve case management,
  • provide alternative methods of dispute resolution (such as negotiation, mediation, and arbitration) with a large pool of personnel, and
  • provide you access to better legal service management systems at a significantly reduced cost.

Especially when you focus on outsourcing your discretionary, and leverageable, legal services. While the following governance services are non-discretionary for most large corporations, and not good candidates for outsourcing (as you often need to keep these functions within your control to insure regulatory compliance and/or trade secret protection):

  • corporate annual meeting preparation and board resolutions,
  • political action committee management, and
  • mergers, acquisitions, divestitures, and joint venture legal support

The following discretionary, and leverageable, law services are great candidates for a shared services organization:

  • litigation / arbitration that is being considered,
  • trademarks, copyrights, and patents are being pursued, and
  • anti-trust/competition scenarios that are perceived.

As the author points out, as long as any risks are properly identified, and dealt with up-front, this model can prove very profitable for some organizations. So if your firm spends a lot on legal, internally or externally, take the bell off that sacred cow, determine whether or not your really getting value for money in the current model, identify any confidentiality requirements or situations which would require a quick response, define key performance metrics, and go to the market. You might just save your organization a few million in the process.

Is Your Legal Team Ready (for Supply Chain Litigation)?

A recent CFO article on The Next Wave did a great job of pointing out that litigation is likely to spike again this year, starting next quarter. Noting that recession-related litigation last spiked in 2001 when the dot-com bubble burst, the wounds of recession often encounter a particularly painful form of salt as corporate attorneys stand ready to pour it on if they sense weakness in a rival, or a way to compensate for their own economic woes. Legal wrangling is already erupting across the board as aggrieved plaintiffs battle over breached labor contracts, unwarranted (executive) layoffs, dubious financial disclosures, broken supply chains, ailing strategic partnerships, ravaged 401(k) plans, unjust competitive practices, intellectual-property infringements, and curtailed credit lines. And as the article notes, that’s only a starting list.

Furthermore, the experts are expecting an avalanche in legal activity, starting as early as next quarter, with electronic discovery, intellectual property rights, anti-trust initiatives, and foreign corrupt practices leading the way, even though large companies are already spending millions a year on litigation. (In 2007, one in five large U.S. companies spent $10 Million or more on litigation, and the number of smaller companies spending more than $1 Million on litigation increased threefold.) As such, companies should expect their rivals to dust off their patents, pull out all the stops against perceived monopolies and their acquisition activity (under the “anti-trust” umbrella), report them on any practice that could be considered a foreign corrupt practice (in hopes that a resultant fine will bankrupt them), and challenge any e-discovery initiative as violating client-attorney privilege.

So what can you do to mitigate the risk?

  • Legal Team Readiness
    Make sure your legal team is primed and ready for unexpected, unwarranted, and ill-conceived litigation. They should be fully staffed; up-to-date on corporate policies, practices, and promotions; and supported by legal experts and support firms already on retainer.
  • Patent Perception
    Make sure that your legal team is well versed in the patents owned by your competitors and the usual patent trolls in your industry and that preliminary arguments as to why they don’t apply and / or why they are invalid (proof of prior art) are already drafted. In addition, they should be ready with counter-arguments as to potential violations of your patents by your competitors. Sometimes, nothing quashes a patent suit faster than the threat of a valid counter-suit.
  • Acquisition Acuity
    Avoid any acquisitions not already under way that could be seen as contributing to a monopoly, and insure that you have lots of facts, figures, and expert opinions ready to go as to why your current merger and acquisition plans will not result in a monopoly. If you do your homework, you just might be able to get the case thrown out before it ever gets to trial.
  • Practice Proofing
    Make sure your legal team has an expert (on retainer) on the laws with each country you are doing business with as well as the foreign corrupt practices act, alien tort claims act, and other laws that could be used to bring charges against your firm on home soil. Have that expert review all of your proposed dealings before any contracts are signed, before any money changes hand, and before any new operations are initiatied.
  • e-Discovery Deftness
    Have your legal and IT teams do a thorough review of the e-Discovery service(s) that you plan to use and insure that their processes are sufficient to prevent disclosure of attorney-client privileged information at least 99.999% of the time. (If you expect that from your SaaS offerings, you should expect it from your e-Discovery offerings! There’s no way that 800 documents should slip through in a batch of only 78,000, as that’s an error rate of 1.02%.) After all, every attorney-client privileged document that slips through is a piece of key evidence that you could be denied.
  • Quality Quest
    If you’re linked to a salmonella, melamine, or other food safety scandal in any way, shape, or form, you’re pretty much guaranteed to be a defendant in a class-action lawsuit these days. Your only defense (against criminal / federal action) is to prove that you exceeded every federal regulation and quality standard and were methodical and religious in your quality testing.
  • Security Strafing
    With the recent changes to the IEEPA that increase the civil penalty for a “person to violate, attempt to violate, or cause a[n export] violation to “an amount not to exceed the greater
    of (1) $250,000; or (2) an amount that is twice the amount of the transaction that is the basis of the violation    “, the introduction of 10+2 where an importer importers can be charged with fines equal to the shipment value if they fail to
    file and face charges of $5,000 per transaction with missing or inaccurate data    , and an increasing number of customs audits (especially against those companies without a solid C-TPAT history), it’s only a matter of time before your weak links are discovered … and if those weak links including non-compliance with one or more regulations, you could be risking a multi-million dollar fine. Do a security compliance audit before the fact, and if you find any discrepancies, voluntarily report them (under the guidance of external legal council) immediately.

A Supply Manager’s Introduction to e-Discovery

Although I’ve blogged about how procurement can help marketing in The Creative Challenge (I and II) by way of a bit of Magic & Logic (I and II), I’ve yet to tackle the subject of e-Discovery, even though David Bush has a great 3-part series on e-Discovery last year over on e-Sourcing Forum.

However, a recent article over on SIG by Ted Ardelean of Oce’ Business Services, which was the first part of a three part series reminded me that this is an important topic and one that Sourcing Innovation needs to cover because, when bids for a given project can often range by as much as a factor of 10, this is one cost that a business really needs to get under control and one area where you have to understand the needs of legal in order for them to accept your help, which they obviously are in desperate need of in many companies.

So what is e-discovery? As per Wikipedia, “e-discovery”, refers to discovery in civil litigation which deals with information in electronic form. And as per e-Sourcing Forum, in recent years, the everyday use of e-mail and other forms of electronically stored information (“ESI”) has radically changed the discovery process, materially increasing its scope, complexity, and expense which has resulted in e-Discovery muschrooming into a multi-billion dollar a year industry. It’s important because amendments to the Federal Rules of Civil Procedure (FRCP), effective 12/01/06, move the adversarial discussion of E-Discovery right up to the preliminary stages of these cases. One emerging byproduct of this clarity from the Courts is the potential for E-Discovery costs to almost immediately dwarf the cost of whatever it is that is in dispute. Needless to say, this is quite troubling for corporate legal departments which can potentially have thousands of these cases going on at any point in time as per a Fulbright Survey.

And it’s not an easy process, especially if you want to be involved (and you do want to be involved, because it represents a huge saving opportunity, and gives you a chance to be an even bigger savings superstar than you already are), but if you follow the basic rules (laid out on e-Sourcing forum) and follow a good process, it is a manageable process. The basic rules are:

  1. You must be as non-disruptive as possible to Legal’s deliberative process and you must demonstrate complete and utter discretion.
  2. You need to understand how the e-Discovery market works.
  3. You need to know what questions you need to ask of Legal.
  4. You need to know how to communicate with the principals of Legal in a way that is meaningful to them.

In addition, as pointed out in Ted Ardelean’s article, you should also:

  • familiarize yourself with the FRCP
  • familiarize yourself with the EDRM (Electronic Discovery Reference Model) that standardizes the process of exchanging ESI in a manner that reduces associated costs
  • start a dialog with your in-house council early, and communicate often

And you should review the case study detailed by David Bush in parts II and III of his series. It contains a basic process that you can use as a starting point for building the in-house process that’s right for you.