Project Management As a Tool to Select, Manage, and Evaluate Outside Counsel

The recent recession has exacerbated the fundamental challenge faced by general counsel: the selection and management of outside counsel. Questions of budget that once could be framed for the CFO or CEO in general terms now require very specific answers. And issues of value are being asked by senior executives with greater intensity. Perhaps most troubling, general counsel still struggle to establish terms of engagement that in almost any other area of procurement would be viewed as basic. Cost, timing, deliverables, staffing and payment terms remain remarkably elusive concepts in the legal profession.

Project management, which is finding increasing acceptance in e-discovery, when applied to corporate matters provides a powerful tool for answering basic, key questions about selecting and managing outside counsel. And it can address issues of fees with such precision and transparency that it becomes an alternative, if you will, to alternative fee arrangements. If properly implemented, project management offers general counsel the opportunity to create and stay within budget, select counsel using more objective standards, and manage as well as evaluate the performance of outside counsel. This article focuses on how project management can assist general counsel to achieve some of the key elements of their mission.

Basic, Challenging Questions

Among the demanding duties of general counsel is the identification, selection, engagement and management of outside counsel. Some of the most basic and reasonable information needs of general counsel and corporate management are, however, chronically difficult to fulfill. Not coincidentally, they can be equally challenging for outside counsel, as well. Such information needs include:

• How much will the engagement cost?
• Is the client getting good value for its money?
• What exactly will be done in the course of executing the project?
• If there are alternative routes to achieving the client's goals, each with distinct risks and rewards, what are the comparative costs of those paths?
• Who will be doing the work?
• What deliverables can the client expect?
• When will those deliverables arrive?
• What does outside counsel need from the general counsel and the client's personnel and when?
• How can the general counsel compare the projected cost, staffing and timing of one law firm against another?
• Upon completion of the project, how can the general counsel evaluate the performance of outside counsel?

Project management gives general counsel the tools to answer the “Basic Questions” with clarity and, in most cases, greater certainty. Significantly, project management permits general counsel and their CFOs to reasonably exact an intelligible, credible, fair fixed-fee commitment from outside counsel. Further, project management can facilitate a level of transparency and client/firm collaboration that are unprecedented. In brief, this ancient tool can serve as a “sunshine act” for legal services.

Requirements

Project planning may take different forms and be applied in different manners. There are many resources both inside and outside the legal profession for training and tools to render project planning effective, including an array of online offerings. For purposes of this article, assume, at the very least, that the plan contains only a few, basic elements: tasks; groups of related tasks (modules); the order in which the tasks and modules must be completed (dependencies); who is responsible for each task (including personnel from the client, law firm and non-lawyer service providers such as accountants); timing (beginning and end of task); and, finally, the cost of each task (including expenses) which will help calculate the cost of each module and ultimately of the entire project. With this information, most of the Basic Questions can be addressed.

Known Unknowns

“Requirements” refers to the process of determining what your project needs. Those needs come from you (“I need to raise $30 million in equity probably from my existing shareholders, but perhaps others”), from your outside counsel (“How many people will be participating and do they meet certain income and asset standards?”), from other parties to the transaction (“Our due diligence check list will be with you in two days”) and from the legal environment in which you operate (“Advertising your private share offering in the local newspaper is not okay”).

The first challenge for using pro-ject planning for legal engagements is whether we can know enough about the whole project before we start. In response, similar projects will share common tasks, deliverables and disciplines, while each will almost certainly have unique elements. A private placement for Client A will share most of the same tasks and deliverables as a private placement for Client B. The same can be said for fund formations, mergers, public offerings and a host of other common corporate finance projects. The variables in each, however, can be identified in the requirements process.

In some matters, the requirements process can be conducted with the use of a term sheet or summary of terms. Experienced counsel will know how to use those documents to reveal most of the key elements of the work. In many ways, this mimics the client-architect process of determining client needs, viewed against the demands of the site, building code, engineering and, most importantly, budget.

It is very possible that, even with the most diligent of requirements work, some unknowns will remain. While the unexpected and novel are always possible, most of the unknowns in a project fall into the “known unknown” category (“Some of my investors may not be from
the United States”), and experienced outside counsel should be able to identify these and mitigate their impact. For example, although we can't know how many “turns” a merger agreement will take, we can minimize the number of “turns” through a strong, thorough term sheet and price each “turn” individually.

Intended Consequences

Project management can serve, in a sense, as a microscope in the course of preparing and executing complex legal projects. With this higher magnification, both general counsel and outside law firms are able to consider some old issues in new and more effective ways.

Budget Options

As noted above, the foundation work of project planning is identifying each step in the execution of a legal project. At the conclusion of the requirements phase, counsel is able to say to the client, “Based on what I know of your goals, this is what my team and I intend to do.” But it also permits a general counsel to say to his/her outside counsel, “This is how much I would like to spend; what does it buy?” or “I see that this module costs X dollars. What less expensive alternatives are there or can we delete it?” Detailed project planning in which there is a dynamic conversation between client and counsel permits each to consider whether and to what extent there is latitude in the scope of a complex legal project.

For example, in a pure Rule 506 offering, the private placement memorandum can be as complete as a registration statement or, consistent with the anti-fraud provisions of the various securities laws, a three-page memorandum. The determination of the amount and type of the disclosure is in part an exercise in risk management. If a prospectus is an insurance policy (as some lawyers view it), we can now ask and, in some cases, answer how much each aspect of “coverage” is worth. Detailed project management, particularly in the requirements phase, offers an opportunity to assign costs to that assessment. Emerging managers with an institutional investor base may, for example, want to consider the risk, benefit and now cost of having a U.S. tax risk section in their offering memorandum that covers generic topics such as the nature of pass-through vehicles. On the other hand, if strategy or structure presents specific tax risks, perhaps the tax disclosure can be limited to those issues.

Similarly, if there are non-U.S. persons investing in a U.S. real estate fund, offshore structures must be considered. Tax counsel will inevitably explain the merits and risks of each, but different structures may present different “construction” and “maintenance” costs. Ideally, the requirements phase of project management allows a fund manager the opportunity to incorporate cost, among other issues, into decisions with respect to such issues.

Team Building

For most clients, their initial and most significant ongoing contact with outside counsel is their “relationship” partner. After all, he or she is often the reason why the client is a client of the law firm in the first place. But the team members that actually execute the project, certainly in the associate ranks, are frequently new to general counsel and personnel. (Disturbingly often, associates may last for just one project, depriving the client of their legacy knowledge when the next, similar transaction arrives.) From the point of view of the relationship partner, he or she is doing his or her best to staff the project with the best and brightest, given competing schedules, other relationship partners and the training of associates.

Imagine instead a meeting during the requirements phase (or counsel selection phase) at which the general counsel and relevant representatives from the client, on the one hand, and the relationship partner, on the other, look at all that must be accomplished to get the deal done. The question on the table is who will work on each element. Ideally, issues such as expertise, availability and, perhaps, pricing would dominate. If time permitted, general counsel and appropriate representative of the client would even have the opportunity to meet the prospective team members with whom they would be interacting. If this process occurs during the selection of counsel, it might heavily influence the result.

Transparency

In almost each phase of an engagement, project management introduces a high level of transparency into a process that can sometimes be opaque. Several established online project management systems offer the general counsel, the outside legal team and non-lawyer team members (e.g., accountants and experts) the opportunity to obtain immediate, real time information on the progress of their project, as well as a venue for sharing documents and communicating with each other. Many of these systems come with smart-phone apps that permit any authorized participant to look at a project, or select portions of it, from anywhere at any time. Client personnel or the general counsel's staff would no longer need to contact outside counsel to determine the status of the project.

Beyond the status of an engagement, project management can give the general counsel and his or her staff as detailed a description of the work to be performed by outside counsel as the general counsel wishes. For example, the drafting of the offering memorandum could be one line item on the project plan, or it could be more granular and show the progress of each section of the memorandum. This more detailed approach may be particularly useful in the management section, for example, where the client will be involved in providing biographical information to outside counsel.

The requirements process alone can give clients insight into the complexity and other demands of their project, some of which may be new or surprising for the client. This process can immediately reveal issues that otherwise might ambush the project much later. (“You plan on soliciting EU investors?”) And from the earliest moment, both client and firm can be on the same page.

Comparative Law(yer)

During the process of selecting counsel for a project, general counsel can view, evaluate and compare proposals from competing firms, where each proposal contains specific pricing, staffing, deliverables and timing, all based on a detailed project plan. With that information, general counsel and management are in an excellent position to not only make a well-informed decision, but one that supports the client's sense of value. Intangible issues such as the significance of a particular law firm's brand can be assessed in the context of all the other elements contained in the competing quotes. In other words, how much, if any, premium must the client pay for a “first-tier” firm and is it worth it? For those general counsel who believe in “hiring lawyers and not law firms,” how does the composition of the several competing teams compare? In the midst of an outside counsel selection process, how will a general counsel treat a firm that is not specific about each of these elements?

Leverage

As mundane as it may sound, project management can be a lever in the planning, pricing, provision and consumption of legal services. Used effectively, it can usher in a world of comprehensible and credible fixed fees. Beyond pricing, it offers clients and management greater clarity and certainty about timing, staffing and deliverables. It also offers general counsel and their management teams unprecedented power and flexibility to fulfill the adage “hire the lawyer and not the firm” ' even to the point of selecting lawyers for a project who are not affiliated with the same law firm. For law firms, project planning permits them to go beyond a mere battle of the brands to compete on issues that are meaningful and tangible for general counsel and CFOs. Outside counsel can use project planning to develop detailed and specific proposals for work they are soliciting, to manage the process during the engagement, and to review variances so they can do a better job in the future. But once an engagement is awarded, the winner will be accountable and subject to a level of scrutiny in ways that would be difficult to achieve without project planning. The question is less “how can I use project management?” but more “how can I not?”

Jonathan Baum is the principal of Avenir Law and has more than 30 years of experience as a hedge fund, securities, corporate and finance lawyer. Baum can be reached at [email protected].

The recent recession has exacerbated the fundamental challenge faced by general counsel: the selection and management of outside counsel. Questions of budget that once could be framed for the CFO or CEO in general terms now require very specific answers. And issues of value are being asked by senior executives with greater intensity. Perhaps most troubling, general counsel still struggle to establish terms of engagement that in almost any other area of procurement would be viewed as basic. Cost, timing, deliverables, staffing and payment terms remain remarkably elusive concepts in the legal profession.

Project management, which is finding increasing acceptance in e-discovery, when applied to corporate matters provides a powerful tool for answering basic, key questions about selecting and managing outside counsel. And it can address issues of fees with such precision and transparency that it becomes an alternative, if you will, to alternative fee arrangements. If properly implemented, project management offers general counsel the opportunity to create and stay within budget, select counsel using more objective standards, and manage as well as evaluate the performance of outside counsel. This article focuses on how project management can assist general counsel to achieve some of the key elements of their mission.

Basic, Challenging Questions

Among the demanding duties of general counsel is the identification, selection, engagement and management of outside counsel. Some of the most basic and reasonable information needs of general counsel and corporate management are, however, chronically difficult to fulfill. Not coincidentally, they can be equally challenging for outside counsel, as well. Such information needs include:

• How much will the engagement cost?
• Is the client getting good value for its money?
• What exactly will be done in the course of executing the project?
• If there are alternative routes to achieving the client's goals, each with distinct risks and rewards, what are the comparative costs of those paths?
• Who will be doing the work?
• What deliverables can the client expect?
• When will those deliverables arrive?
• What does outside counsel need from the general counsel and the client's personnel and when?
• How can the general counsel compare the projected cost, staffing and timing of one law firm against another?
• Upon completion of the project, how can the general counsel evaluate the performance of outside counsel?

Project management gives general counsel the tools to answer the “Basic Questions” with clarity and, in most cases, greater certainty. Significantly, project management permits general counsel and their CFOs to reasonably exact an intelligible, credible, fair fixed-fee commitment from outside counsel. Further, project management can facilitate a level of transparency and client/firm collaboration that are unprecedented. In brief, this ancient tool can serve as a “sunshine act” for legal services.

Requirements

Project planning may take different forms and be applied in different manners. There are many resources both inside and outside the legal profession for training and tools to render project planning effective, including an array of online offerings. For purposes of this article, assume, at the very least, that the plan contains only a few, basic elements: tasks; groups of related tasks (modules); the order in which the tasks and modules must be completed (dependencies); who is responsible for each task (including personnel from the client, law firm and non-lawyer service providers such as accountants); timing (beginning and end of task); and, finally, the cost of each task (including expenses) which will help calculate the cost of each module and ultimately of the entire project. With this information, most of the Basic Questions can be addressed.

Known Unknowns

“Requirements” refers to the process of determining what your project needs. Those needs come from you (“I need to raise $30 million in equity probably from my existing shareholders, but perhaps others”), from your outside counsel (“How many people will be participating and do they meet certain income and asset standards?”), from other parties to the transaction (“Our due diligence check list will be with you in two days”) and from the legal environment in which you operate (“Advertising your private share offering in the local newspaper is not okay”).

The first challenge for using pro-ject planning for legal engagements is whether we can know enough about the whole project before we start. In response, similar projects will share common tasks, deliverables and disciplines, while each will almost certainly have unique elements. A private placement for Client A will share most of the same tasks and deliverables as a private placement for Client B. The same can be said for fund formations, mergers, public offerings and a host of other common corporate finance projects. The variables in each, however, can be identified in the requirements process.

In some matters, the requirements process can be conducted with the use of a term sheet or summary of terms. Experienced counsel will know how to use those documents to reveal most of the key elements of the work. In many ways, this mimics the client-architect process of determining client needs, viewed against the demands of the site, building code, engineering and, most importantly, budget.

It is very possible that, even with the most diligent of requirements work, some unknowns will remain. While the unexpected and novel are always possible, most of the unknowns in a project fall into the “known unknown” category (“Some of my investors may not be from
the United States”), and experienced outside counsel should be able to identify these and mitigate their impact. For example, although we can't know how many “turns” a merger agreement will take, we can minimize the number of “turns” through a strong, thorough term sheet and price each “turn” individually.

Intended Consequences

Project management can serve, in a sense, as a microscope in the course of preparing and executing complex legal projects. With this higher magnification, both general counsel and outside law firms are able to consider some old issues in new and more effective ways.

Budget Options

As noted above, the foundation work of project planning is identifying each step in the execution of a legal project. At the conclusion of the requirements phase, counsel is able to say to the client, “Based on what I know of your goals, this is what my team and I intend to do.” But it also permits a general counsel to say to his/her outside counsel, “This is how much I would like to spend; what does it buy?” or “I see that this module costs X dollars. What less expensive alternatives are there or can we delete it?” Detailed project planning in which there is a dynamic conversation between client and counsel permits each to consider whether and to what extent there is latitude in the scope of a complex legal project.

For example, in a pure Rule 506 offering, the private placement memorandum can be as complete as a registration statement or, consistent with the anti-fraud provisions of the various securities laws, a three-page memorandum. The determination of the amount and type of the disclosure is in part an exercise in risk management. If a prospectus is an insurance policy (as some lawyers view it), we can now ask and, in some cases, answer how much each aspect of “coverage” is worth. Detailed project management, particularly in the requirements phase, offers an opportunity to assign costs to that assessment. Emerging managers with an institutional investor base may, for example, want to consider the risk, benefit and now cost of having a U.S. tax risk section in their offering memorandum that covers generic topics such as the nature of pass-through vehicles. On the other hand, if strategy or structure presents specific tax risks, perhaps the tax disclosure can be limited to those issues.

Similarly, if there are non-U.S. persons investing in a U.S. real estate fund, offshore structures must be considered. Tax counsel will inevitably explain the merits and risks of each, but different structures may present different “construction” and “maintenance” costs. Ideally, the requirements phase of project management allows a fund manager the opportunity to incorporate cost, among other issues, into decisions with respect to such issues.

Team Building

For most clients, their initial and most significant ongoing contact with outside counsel is their “relationship” partner. After all, he or she is often the reason why the client is a client of the law firm in the first place. But the team members that actually execute the project, certainly in the associate ranks, are frequently new to general counsel and personnel. (Disturbingly often, associates may last for just one project, depriving the client of their legacy knowledge when the next, similar transaction arrives.) From the point of view of the relationship partner, he or she is doing his or her best to staff the project with the best and brightest, given competing schedules, other relationship partners and the training of associates.

Imagine instead a meeting during the requirements phase (or counsel selection phase) at which the general counsel and relevant representatives from the client, on the one hand, and the relationship partner, on the other, look at all that must be accomplished to get the deal done. The question on the table is who will work on each element. Ideally, issues such as expertise, availability and, perhaps, pricing would dominate. If time permitted, general counsel and appropriate representative of the client would even have the opportunity to meet the prospective team members with whom they would be interacting. If this process occurs during the selection of counsel, it might heavily influence the result.

Transparency

In almost each phase of an engagement, project management introduces a high level of transparency into a process that can sometimes be opaque. Several established online project management systems offer the general counsel, the outside legal team and non-lawyer team members (e.g., accountants and experts) the opportunity to obtain immediate, real time information on the progress of their project, as well as a venue for sharing documents and communicating with each other. Many of these systems come with smart-phone apps that permit any authorized participant to look at a project, or select portions of it, from anywhere at any time. Client personnel or the general counsel's staff would no longer need to contact outside counsel to determine the status of the project.

Beyond the status of an engagement, project management can give the general counsel and his or her staff as detailed a description of the work to be performed by outside counsel as the general counsel wishes. For example, the drafting of the offering memorandum could be one line item on the project plan, or it could be more granular and show the progress of each section of the memorandum. This more detailed approach may be particularly useful in the management section, for example, where the client will be involved in providing biographical information to outside counsel.

The requirements process alone can give clients insight into the complexity and other demands of their project, some of which may be new or surprising for the client. This process can immediately reveal issues that otherwise might ambush the project much later. (“You plan on soliciting EU investors?”) And from the earliest moment, both client and firm can be on the same page.

Comparative Law(yer)

During the process of selecting counsel for a project, general counsel can view, evaluate and compare proposals from competing firms, where each proposal contains specific pricing, staffing, deliverables and timing, all based on a detailed project plan. With that information, general counsel and management are in an excellent position to not only make a well-informed decision, but one that supports the client's sense of value. Intangible issues such as the significance of a particular law firm's brand can be assessed in the context of all the other elements contained in the competing quotes. In other words, how much, if any, premium must the client pay for a “first-tier” firm and is it worth it? For those general counsel who believe in “hiring lawyers and not law firms,” how does the composition of the several competing teams compare? In the midst of an outside counsel selection process, how will a general counsel treat a firm that is not specific about each of these elements?

Leverage

As mundane as it may sound, project management can be a lever in the planning, pricing, provision and consumption of legal services. Used effectively, it can usher in a world of comprehensible and credible fixed fees. Beyond pricing, it offers clients and management greater clarity and certainty about timing, staffing and deliverables. It also offers general counsel and their management teams unprecedented power and flexibility to fulfill the adage “hire the lawyer and not the firm” ' even to the point of selecting lawyers for a project who are not affiliated with the same law firm. For law firms, project planning permits them to go beyond a mere battle of the brands to compete on issues that are meaningful and tangible for general counsel and CFOs. Outside counsel can use project planning to develop detailed and specific proposals for work they are soliciting, to manage the process during the engagement, and to review variances so they can do a better job in the future. But once an engagement is awarded, the winner will be accountable and subject to a level of scrutiny in ways that would be difficult to achieve without project planning. The question is less “how can I use project management?” but more “how can I not?”

Jonathan Baum is the principal of Avenir Law and has more than 30 years of experience as a hedge fund, securities, corporate and finance lawyer. Baum can be reached at [email protected].