Risk Update

Outside Counsel Guidelines (OCG) — Looking a Gift Horse in the Mouth?

I’m a sucker for a creative headline, we all know. And an effort in story form. And this topic is always of interesting. So from Dentons partners Shari L. Klevens and Alanna Clair we have: “Looking a Gift Horse in the Mouth: Negotiating Terms for Outside Counsel Guidelines” —

  • “You receive a call about a new client with a very large potential matter. The client is a corporation whose regular outside counsel has a conflict, and this new matter creates an opportunity to establish a good relationship with a potentially lucrative client. But there’s a catch… Although your firm routinely begins new client representations by means of a standard engagement letter, this client sends you ‘outside counsel guidelines’ to which it requires agreement. The guidelines cover a host of issues, from billing protocols to technology requirements to the scope of the representation. Is there a risk to accepting the client’s guidelines? Can you negotiate the terms?”
  • “Agreeing to comply with a client’s outside counsel guidelines can help law firms obtain work in a competitive marketplace. However, the guidelines also can create risks for law firms that do not take the time to fully consider or vet the requirements’ guidelines.”
  • “Engagement letters from a law firm are often drawn to define the relationship and, at times and where permissible, to shape a law firm’s potential exposure to the client. If the attorney-client relationship is governed solely by the client’s outside counsel guidelines, however, those same protections may not be in place.”
  • “For example, the definition of who the ‘client’ is in a set of outside counsel guidelines could be expansive, including not only the direct corporate client but also related entities. Such a scenario could create complications for a law firm’s exposure or in future conflicts analysis. Indeed, the law firm could be found to owe duties to an entity that the law firm did not expect—but might have been able to consider or negotiate if the risk had been identified.”
  • “The competition for high-profile or other legal work can be significant: law firms may be tempted to agree to terms without giving proper consideration to whether the law firm has the ability to comply with the terms.”
  • “For example, many outside counsel guidelines will have specific requirements regarding billing (frequency of invoices, rates, compliance with an electronic system). It can create issues for a law firm to agree to a required electronic billing process if it then lacks the staff or resources to comply, as required.”
  • “If a law firm agrees to incorporate certain cybersecurity protections or protocols but then is unable to do so, the client may argue that the law firm is liable to the client for any future breaches or issues. The law firm could then be in the difficult position of having to explain why it agreed to protocols that were beyond what was realistic.”
  • “After the law firm reviews and approves of outside counsel guidelines, a next step is for the law firm to educate the team members working on a particular matter about the specifics of the guidelines. By agreeing to the guidelines but then failing to implement the guidelines among the team, a law firm could create an uncomfortable situation with the client…As such, many firms in this situation will discuss the terms with the team working on a matter to reduce the administrative overhead of compliance.”

 

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