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Five Critical Questions Every Client Should Ask Law Firms About Budgets

Posted in Legal Department Management

imagesAlthough dramatic changes in law’s economic landscape have conferred far greater bargaining leverage and purchasing power on clients, in budget discussions with outside law firms, many in-house counsel just aren’t asking the right questions. Clients simply cannot optimize budget planning and management without  knowing the answers to these five questions:

  1. Has the Budget Process Included Input from Primary Client Stakeholders?

Going beyond negotiations among lawyers on the law firm and client side, the budget must reflect input from client constituents who have “skin in the game.”  This is especially important where a client business unit is paying for the legal services even though the company legal department is assigning the work to outside counsel.  What may seem important (or acceptable in cost) to in-house counsel may not have the same level of acceptance by line management and business group “clients.”

  1. Does the Law Firm Have Appropriate and Adequate Resources to Deliver the Work Described in the Budget?

Many clients take the competency of outside counsel as a given. But there may be gaps in the capabilities even of well-respected firms, in terms both of subject matter expertise and “person power.” Partners in law firms are ambitious people, and in today’s competitive environment, there are times when the “promise” of services evidenced in the budget exceeds the firm’s “power” to deliver them.  That may mean, for example, that associates assigned to certain matters have insufficient knowledge and experience, which can lead to considerably more partner time than was contemplated by the original budget.

Another common resource allocation issue is law firm turnover.  For example, a particular practice group may have 15 – 20% annual turnover of associates (not uncommon), which leads to a constant and expensive (in terms of delays and costs) “churn” of the team working on a client matter.  The client is entitled to understand how the law firm will select and manage the team in order to stay within budget and achieve the client’s goals.

  1. Does the Budget Reflect Risk Management as well as Just Getting Tasks Done?

A good budget should include both a thorough exploration of client goals and a clear-eyed assessment of legal risks.  The budget should identify potential risks and unexpected events, determine the likelihood of their occurrence, and evaluate the anticipated financial impact of each risk to the client.

  1. Does the Budget Include Legal Work That Is Not Essential to the Client Goals for the Matter?

Law firm lawyers often have a hard time distinguishing between fundamental and incidental legal work, between what must be done to reach the client’s goals and turning over every rock along the path. Historically, firms have been driven to take every step, conduct all research, look at every case, and explore every rabbit hole in order to deliver legal services – and to keep the billing clock running, as well.  That may be appropriate in some matters, but more often exhaustive lawyering just is not needed.  And in today’s cost-constrained legal environment, clients view “overlawyering” as a cardinal sin.

  1. Does the Budget Include a Mechanism for Effective Communication and Keeping Key Client Stakeholders Appropriately Informed of Matter Status?

Budgets are not just about numbers; they’re also about when and how those numbers are communicated to the client. Excellent communication takes time, and clients may have specific needs about how and when they need status updates.

If the client needs reports in certain formats, wants reports to include cost and risk projections, or wants outside counsel to participate in weekly telephone check-ins, the budget should include line items for the needed communication. By including the communication as a separate budget item, the clients can assure themselves that their outside counsel are focusing on their specific needs and that there won’t be complaints (and requests for budget changes) about how much time updates are taking.

© 2015, Pam Woldow and Doug Richardson. All rights reserved. No part of this article may be copied or reproduced without prior written approval.