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Do Law Firm Panels Make Sense?
5 min • 07 Jul 24
Introduction
The 2023 Legal Department Operations Index reported that 78% of in-house legal departments placed controlling outside legal costs as being their highest priority.
In-house legal departments have historically implemented law firm panels as a key driver of external cost management, optimising legal service delivery and maintaining quality standards. But do panel law firms really deliver on these requirements?
In-house legal teams ought to be able to answer to their business whether their law firm panels really are a driver of efficiency and cost-effective engagement of its external support and whether their panel of providers really does reduce external legal spend and improve the quality of engagement.
However, the question of whether law firm panels genuinely offer value and justify the time cost of panel selection and management is complex and context-dependent. Here are some considerations:
Measuring Law Firm Panel Program Success
To answer whether a law firm panel program is successful or not is contingent upon a range of metrics, which include:
◼️Law firm panel definition
Law firm panels (sometimes called simply “panel”, “panels,” “panel of preferred law firms”, “list of preferred providers” or such other terms used in an in-house legal context) are groups of legal service providers, law firms, external counsel and alternative legal services providers (ALSPs) used by in-house legal departments for matters briefed externally or otherwise not handled in-house.
Some in-house teams may choose dedicated panels categorised by type of service (e.g. law firm or ALSP), expertise, support area, cost, size etc.
◼️Law firm panel selection
Creating criteria for your law firm panel selection process is critical. Without it there is no objective measure in place to determine who should and should not be on your legal panel.
Most in-house teams focus solely on criteria for admission to a panel, but not also on criteria for firms to remain on a panel. Ongoing performance monitoring is critical to ensure that a panel of providers is still optimal, and offering the required performance levels and standards on an ongoing basis.
In-house counsel must also consider and revise where necessary their business goals for their panel. What might be best for you today, may not be best for you tomorrow.
◼️Law firm panel performance (hard and soft)
Hard Results
Some in-house teams may simply consider setting up a law firm panel as a success in and of itself. However, this offers no insight or data-based view on the performance of their panel programs with reference to hard (quantitative) results and soft (qualitative results).
An obvious way for in-house teams to measure the success of a law firm panel program is whether it saved your company money. But this requires careful spend category allocation and management – and a clear understanding of what things cost before and after your panel implementation.
As we will outline below – most clients report that their law firm panels routinely fail to deliver cost savings at all.
Soft Results
Looking beyond law firm panel cost savings, in-house counsel also cites the importance of qualitative measures, including expertise, relationships with external providers, and ‘value-add’ from panel law firms.
It is increasingly important (read necessary) for the in-house team to be able to objectively measure and quantify these qualitative measures of success, in order to offer data-driven insights and evidence to the business as to the success and requirement for a law firm panel at all.
If you are unable to report data-driven findings to your business, then how can you ever measure the effectiveness of your panel, and whether such is delivering any value or efficiencies at all?
◼️Law firm panel management
Managing panels of external providers is a discipline that requires legal operations know-how, change management capability, and a skill set for building and maintaining relationships.
Implementing and performance managing law firm panels is something that most legal departments we speak to have difficulty with due to the often-evolving nature of their internal needs, and the constant shift in dynamic with the external providers (consider change in personnel, work types etc.).
A poorly managed panel of firms is unlikely to deliver promised value add – especially where nobody is holding firms to account to deliver what was promised at the time of panel inception.
Hard Results – Law Firm Panels Generally Fail to Deliver Improvements In Cost Or Service Efficiency
According to studies and data collated by the GC Thought Leaders Experiment, they reported that for over 1,400 actual legal matters for 28 large companies, panel law firms did not outperform non-panel law firms in all categories, including cost/efficiency, quality of work, responsiveness, legal expertise, solutions focus and likelihood to recommend.
This data would suggest that law firm panels are not delivering in reducing cost or improving overall legal service delivery and standards.
The report also compared clients with panels to those without panels – and confirmed that clients with panels saw no differences in external counsel performance.
Simply put, most law firm panels simply do not justify the time cost, expense, and disruption to implement as the resulting support gains and/or cost savings generally fail to materialize.
We also question whether having a panel of law firms actually acts as a blocker for in-house teams accessing more cost-effective alternatives to traditional law firms (e.g. alternative legal service providers / managed legal services)?
In-house counsel must be alive to this. If your law firm panel strategy is not delivering on your stated objectives then is it time to pivot, consider alternative legal support offerings, or simply abandon the panel process altogether?
Perceived Benefits of Law Firm Panels (With Cautionary Notes)
1. Ease of engagement: Ignoring the time cost of panel inception, having a panel of firms should reduce the time cost of engagement – but consider the time cost of panel implementation and management.
2. Efficiency: In addition to reducing time spent onboarding, panel firms ought to be committed to being familiar with your business and processes, thereby reducing time and cost of ‘getting up to speed’ in your matters. Consider how you capture and report this metric.
3. Cost Control: Panels can offer framework arrangements relating to negotiated discounts on hourly rates, pre-agreed fee structures for certain work types, volume discounts and rebates etc. But query how you benchmark this on an ongoing basis during the lifecycle of your panel appointment.
4. Improved Quality: Commonly the perception is that panels improve the consistency and quality of support from external providers – yet query how many are able to independently and reliably verify this. Note the findings from the GC Thought Leaders Experiment.
5. Easier to manage: Few would argue that it is easier to manage, track and evaluate the performance of a smaller number of external providers. In theory this should lead to better relationships and improved performance, but how is this tangible measured -v- non-panel arrangements?
Challenges of Law Firm Panels
1. Time cost to implement and manage: The time cost of panel selection, implementing and managing panels of external providers is significant being both time consuming and resource intensive. It is important to consider (and value) the resource costs associated with implementing panels when considering any perceived or derived benefits of your panel process.
2. Performance Management: Like any external service provider, your panel firms must be properly monitored, performance managed, and held accountable against the criteria used for panel firm selection. Inevitably, this requires continuous effort and input from your team and proper legal operations rigour and competency – all of which are a drain on your limited resources.
3. Complacency: Panel firms who perceive they may have a guaranteed earn or ‘golden goose’ client may become complacent which can lead to a decline in productivity, service standards and cost efficiency.
4. Law Firm Churn: Lawyers and law firms are subject to change in personnel. Consider the impact on your panel appointments if key individuals leave your panel firms, and how this impacts your relationship with them, and their ability to continue to perform your required services at the desired level.
5. They prevent other engagements: Clients report being unable to engage providers ‘off-panel’ meaning the in-house team may be prevent from accessing more cost-effective alternatives to the panel firms (e.g. alternative legal service providers / managed legal service providers etc)?
Viable and Cost-Efficient Alternatives
1. Legal Marketplaces and Platforms: Platforms like UpCounsel or Priori Legal offer a marketplace of pre-vetted lawyers and law firms. These platforms provide flexibility and competitive pricing without long-term commitments. Leading the market is our own GLS Legal Operations Centre (LOC). The LOC places a huge amount of efficiency driving fire resource-based power directly into the hands of the in-house team itself - but spares them the cost of having to source, operate and maintain the platform.
2. Freelance and Contract Attorneys: Engaging freelance lawyers or legal consultants on a project basis can be more cost-effective for specific needs.
3. Internal Legal Teams: Building a robust in-house legal team can reduce reliance on external firms. While there are upfront costs, it may lead to savings in the long run.
4. Managed Legal Services Providers: Companies like Axiom and Elevate offer managed legal services, providing a hybrid model that combines elements of in-house and outsourced legal work. Again – this is an area that GLS excels in – and unlike the names above, our offering is backed by the GLS Legal Operations Centre which delivers unrivalled efficiencies.
5. Alternative Fee Arrangements (AFAs): Instead of traditional hourly billing, negotiating alternative fee arrangements such as fixed fees, capped fees, or success-based fees can align the interests of law firms and clients more closely.
Conclusion
Whether law firm panels deliver cost savings and improved quality of service remains a topic of strong debate, and is contingent on a number of subjective measures and objective data points.
There is no one size fits all approach, and the individual budget, architecture and support requirements of one in-house team may benefit more from setting up a panel than other.
All in-house teams that have implemented panels of external providers must empower themselves by objectively measuring and analysing hard and soft results from their panel providers.
In addition, before implementing a panel, the in-house team must be aware of, and identify objectives or performance metrics against which its panel can be measured on an on-going basis. Only then can the in-house team be properly informed to make an objective assessment of whether its panel of providers is delivering the required and stated objectives or not.
If an in-house team has failed to identify key performance indicators (KPIs) or drivers behind implementing its panel, then it cannot objectively measure the effectiveness of the same. And increasingly available data suggests that panels (and especially those not properly performance managed) do not deliver cost savings, reduced spending, or improved quality.
The above, together with the advent of AFAs, ALSPs and other alternative service offerings, it cannot be ignored that traditional law firm panels may not offer the value they once did.
In-house teams may benefit from more flexible, cost-effective, or strategic and legal-ops-driven support from external providers outside those comprised within a panel.
Ultimately, the in-house team must carefully assess the pros and cons of maintaining a law firm panel against the alternatives to determine the best approach to fulfill external support requirements.
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To learn more about GLS Overflow™ you can download our GLS Overflow - Resource Overview or get in touch with us to discuss your requirements.
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