The Outside Counsel Decision Tree: How to Justify Your Decisions When Resourcing New Matters

When can a matter be managed with in-house resources? When does it need to go to outside counsel? 

As simple as this seems, many in-house legal teams skip the initial resourcing consideration or have few guidelines for how attorneys should resource their matters. 

It’s common — in fact — for in-house attorneys to automatically send matters to outside counsel without even thinking much about what other resources might be available. 

They’ll send an email or make a phone call to a law firm they’ve worked with before, skipping over the question of whether or not an internal resource is available.

In contrast, the most successful outside counsel management programs we’ve seen at PERSUIT — and we’ve worked with hundreds of Fortune 500 legal teams — all include a clear process which governs outside counsel engagement by answering the following three questions:

1. Who can engage outside counsel?
2. When is outside counsel engaged? 
3. What is the process used by in-house attorneys to show due diligence when selecting a law firm or legal service provider?

These three questions form the framework of a decision tree that provides standardization, rationalization, and defensibility to the key decision of when to engage outside counsel.

Note: For more on this topic, check out PERSUIT's guide to establishing an outside counsel management program, which includes KPIs to report in the first 30, 90, 180, and 365 days of a new OCM program.  

1. Who can engage outside counsel?

To get better control of who’s engaging outside counsel, the first step is to decide who has the authority to do so. This decision should be part of your larger governance program — ensuring only those who should be hiring outside counsel are doing so.

If your organization is like many, there may be individuals hiring legal counsel you aren’t even aware of. For that reason, the organizations we work with often start with an audit of who is hiring counsel across their organizations — and are sometimes surprised at who is authorized to do so without prior approval. Many find they need to create a new policy defining who can engage outside counsel.

This first step is crucial to the success of any effort to get better control of external legal spend. If you don’t define who can engage outside counsel and when they can do so, you run the risk of having people who routinely go around your process.

2. When is outside counsel engaged? 

After you’ve defined who can engage outside counsel, the next step is to define when, or at what point in the life of the matter, to engage outside counsel. 

What if some of the work you’re sending to outside counsel could be managed with internal resources? Or lower-tier firms? Or an ALSP?

Automatically sending work to firms with whom you have existing relationships often means engaging higher-tier, higher-priced firms and having them perform work that could be handled in-house with existing resources.

This is often the most expensive way to manage a matter. Open-ended hourly rate agreements also have no cap and no way to control spending — even if you are getting a “discount.” (Everyone thinks they have the best discounted rates with their firms — even if the firm gives that “discount” to every client they work with.)

A simple decision tree can help your team make better decisions when sourcing a new matter. While each organization will be a little bit different, a common decision tree might look like the following: 

3. What is the process to show due diligence when selecting a firm or service provider?

After deciding all or part of a matter should go to outside counsel, the successful in-house teams we work with usually invite three or four panel firms to submit proposals describing how they’ll approach the matter and what the cost will be. 

That means taking some time to scope the matter into its expected phases and consider proposals once they are submitted. 

As legal teams are increasingly asked to act more like the other departments, part of that change means documenting and justifying the decisions you make when hiring outside counsel.

Justifying your decisions does not mean you automatically have to choose the lowest cost provider. It just means having a process that allows you to consider all the relevant factors from several different firms.

Perhaps one firm has a partner with relevant past experience with both the judge and opposing counsel. Or perhaps a firm proposes a novel legal strategy that is worth pursuing. When there’s clear differentiation between options, that’s empowers you to justify your decision — even if you’re not selecting the lowest priced firm. Having a proposal in writing also means you have documentation readily available to come back to if needed.

Doing a little bit of work at the beginning of a matter to consider these factors creates a clear, documented history of your team’s due diligence with company resources. 

The payoff: A consistent, transparent process for deciding when to engage outside counsel

Your decision tree may have more branches or forks than the simplified version we’ve shown in the example above. But whatever your specific process, make sure your decision tree covers the three questions we started with:

1. Who can engage outside counsel?
2. When is outside counsel engaged? 
3. What is the process used by in-house attorneys to show due diligence when selecting a law firm or legal service provider?

By answering these questions, you’ll be well on your way to creating an outside counsel program that brings order to the process, is responsible with company resources, and creates a documented history defending your decisions against future scrutiny. 

Note: Want to learn more about how world-class legal teams run their outside counsel management programs? Download PERSUIT's guide to establishing an outside counsel management program, which includes KPIs to report in the first 30, 90, 180, and 365 days of a new OCM program.