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A few years ago, your company rationalised its in-house legal function. What did you do?
We refocused our in-house legal function so that it comprised specialists who directly supported the company’s legal functions – corporate finance, construction, facilities management and corporate law. All other legal functions have been outsourced to external law firms, but under our direct management. In practical terms, this means that some of our company’s departments instruct external our legal network law firms directly. For example, our senior human resources managers are authorised to instruct the relevant network law firm on employment law issues.
Although the legal department does not handle all legal matters directly, it is responsible for leading and managing the process, and keeping control of the company’s overall legal spend. To help us, we have a sophisticated “matter management” database that records all matters, their cost and who is handling them. Every six months, we discuss legal issues with each of the company’s divisions, reviewing what their legal issues are, how their legal needs are resourced, and how much they spend on their legal advice.
This arrangement has proved very successful. In 2005, the legal department carried out a consultation on how this method was working. In essence, the response was “leave everything alone, the system works”.
How did this rationalisation impact on the law firms you instructed?
Before we began our review, Carillion used more than 50 different law firms throughout the UK. Now, our UK network comprises 13 firms. This review took time and effort to implement. Even with the help of our procurement department, it took almost six months to put the new panel in place.
Carillion enforces its legal panel strictly – there are no exceptions. We have a written policy on law firm engagement, setting out which firms we use, why we use them and who in Carillion is authorised to instruct them. Our view is that it is in everyone’s interest to maintain the process firmly. If a law firm accepts an instruction from anyone who isn’t authorised to ask for it, we won’t pay them – it’s as simple as that.
Our panel now includes local firms, who handle property and minor litigation matters, and also magic circle firms. We don’t have any hard and fast rules about using international firms, because no firm covers every country that we operate in. And, even if a firm has an office in a particular jurisdiction, their local lawyers might not be the right people from the job.
During the review process, we did ask law firms to submit details on their hourly rates, even though we didn’t make our appointment decision wholly on price. Perhaps surprisingly, some of the firms we selected now are more expensive in terms of hourly rates than those we used before. However, their overall cost is less because they are able to deliver the expertise more effectively. Our key rationale was – could they deliver what we wanted more cost-efficiently than before?
The new system seems to have worked. Following the rationalisation, we were able reduce to our legal costs by more than 40 per cent. In 2006, our company acquired another company, Mowlem, causing Carillion to double in size. Using the same approach we had already taken with Carillion’s legal department, we were able to reduce the legal costs of the acquired business by a similar amount.
How do you ensure client satisfaction in relation to the legal function?
The legal function is very transparent. In-house clients can review the performance of internal and external lawyers via an online questionnaire. We’ve also decided to hold ourselves to very detailed key performance indicators, which we report our compliance with annually.
As a company, we use formal case and transaction assessments and plans. As a department, we’re not afraid to change people within our external firms who do not wish to follow our processes – and ultimately the firms themselves. Nevertheless, we
are very pleased that we have been able to maintain our present network of firms for more than five years.
Managing External Legal Resources, by Ann Page and Richard Tapp, is available from ISCA Publishing, priced £24.99.
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