The current 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. For three decades I have personally tackled these questions both as inside and general counsel. I have found great success addressing them by using an organizing principle or methodology that is commonplace in most endeavors but is only recently receiving some acceptance in legal services: project management. 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. It may also be used to arrive at fixed fee arrangements with outside counsel. This article will focus on how project management can assist general counsel to achieve some of the key elements of their mission.
Better Answers to Basic Questions
As remarkable as it must seem to colleagues in other departments who acquire goods and services, law departments have been chronically poor in answering the following basic questions (Basic Questions).
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.
There Has to Be a Plan
A plan is required for every endeavor that requires more than one step. Law is no different, in this respect, from constructing a house. In each case, the following apply:
In many ways, clients have been ordering "houses" from lawyers, and lawyers have been "building" them, for quite some time in engagements that, in my experience, often fail to consider, anticipate or plan for several of the issues listed above. If we think of the similarities between building a custom-house to executing a legal project and the amount of conscious, documented planning and management the latter employs, it is remarkable that certain legal projects are completed at all. It is somewhat less remarkable, however, that so many engagements include or end in some level of stress in the lawyer-client relationship. While these problems pre-date and are intensified by the current economic downturn, they can be substantially relieved through a modest amount of thoughtful, detailed project planning.
But Do I Really Have To?
There are several obvious reasons to ignore project planning.
— Known Unknowns
"Requirements" refers to the process of determining what your project needs. Those needs come from you, ("I need to raise $30,000,000 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 project 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. 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 aforementioned 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 for you 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.
— AFAs and Bill Reviews Are Not Enough
Even if that alternative fee arrangement is a fixed fee that feels right to you, how can you know if it’s fair without a detailed explanation of what counsel will be doing, who will be doing the work, when they’ll be doing it and what you’ll be receiving? Those elements are most easily and credibly provided through a project plan. Moreover, project planning can be used to drive a fixed fee process, including a bidding contest among competing firms. And as described elsewhere in this article, in addition to addressing fees, project planning offers insight into all the Basic Questions. If you and your counsel have arrived at a credible and fair fixed fee through a transparent project plan, the only fee issue left will be when you pay. Expensive bill reviews become unnecessary. Checking how many times there were internal conferences at your outside law firm becomes much less interesting, for you.
— Come On, No One Does This
Well, actually, I do. But it is certainly rare. Putting aside for a moment that our profession is hardly known for being cutting edge, your commitment to project planning will only be as great as your interest in answering how much, when, who and what for your work. And if you are committed to this process and these outcomes, your outside counsel will follow. Imagine, for a moment, a hiring process where your request for proposal or RFP requires answers to the basic questions accompanied by supporting documentation (like a project plan). Those firms that do not comply make the selection process that much easier.
— Who Is Going to Do This and When Will They Do It?
Ideally, project plans will be prepared by outside counsel in the course of bidding for your work. As explained above, if you want engagements to be based on clear, certain answers to the Basic Questions, you have every right to insist on a plan to back up counsel’s commitments. Counsel may reasonably engage you in a discussion to refine the scope of engagement. If you are willing to enter into an engagement without answers to the basic questions, you may still insist on a plan as a means of managing the project.
If you are not yet a believer, or if you believe and want additional fuel to inform your conversations with outside counsel, consider the following.
— Budget Options
As noted above, the foundation work of project planning is identifying each step in the execution of a legal project, referred to above as the requirements phase. At the conclusion of the requirements phase, counsel is able to say to you, "Based on what I know of your goals, this is what my team and I intend to do." But it also permits you, as general counsel, to say to your outside counsel, "This is how much I would like to spend; can you do this project at that price and show me how?" 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 you and your outside counsel permits each of you to consider whether and to what extent there is latitude in the scope of a complex legal project. For example, in a private placement, your outside counsel can be relatively precise in describing the increase in cost if the client wants to leave the all accredited investor safe harbor of Rule 506 and enter the more demanding waters of Rule 505 with non-accredited investors. Project planning also permits you to "design" the project with budget in mind. In a pure Rule 506 offering, for example, the offering 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" costs. For example, early-stage issuers formed as limited liability companies 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 the issuer’s business has specific tax attributes, perhaps the tax disclosure can be limited to those 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 you are a client of the law firm in the first place. But the team members in that firm that actually execute the project, certainly in the associate ranks, are frequently new to the client. Disturbingly often, associates may last for just one project, depriving the client of their legacy knowledge when the next deal is ready. From the point of view of the relationship partner, he or she is working hard to staff the project with the best and brightest, given competing schedules, other relationship partners and the training of associates. Imagine a better alternative, however, where the general counsel addresses this issue during the requirements phase (or counsel selection phase). Ideally, the general counsel and his or her business associates would meet with the relationship partner to look at all that must be accomplished to get the deal done. The primary question on the table would be who will work on each element. Specific issues such as expertise, availability and, perhaps, pricing should dominate. Time permitting, general counsel and his or her business associates would 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 choice of law firm.
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 on-line project management systems offer both general counsel, the outside legal team and non-lawyer team members (e.g., accountants, 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 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 management as detailed a description of the work to be performed by outside counsel as the client wishes. For example, the drafting of the offering memorandum could be one line item, 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 Lawyer
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?
Give Me One Good Reason Why Not
It is certainly not part of most law firm’s customary practice to produce project plans for any purpose, much less to develop competitive bids or to open the process up to clients. But if a general counsel is determined to get clear and credible answers to the Basic Questions from his or her outside counsel, make the best informed decision he or she can on the selection of that counsel, experience as few disappointments as possible during the engagement and enjoy a satisfactory outcome on a project itself, a thorough project plan is essential. Either the general counsel will insist on a detailed project plan from counsel (perhaps as an expansion of its standard engagement policies) or the general counsel will engage someone to do it for him or her. To do otherwise would be to go to a builder, say "Hey, build me a house" and check on the progress every week or so from the curb and never knowing how much the next check will be. The question is less "how can I use project planning", 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. His career has included several years at Fenwick and West, as well as executive and principal positions in a bulge-bracket Wall Street investment bank and general counsel of a U.S. fund manager. Mr. Baum may be reached at email@example.com.
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