When creating a vendor management process, consider these best practices.

Every company wants the best results from their legal partners, but when evaluating the performance of multiple outside law firms, it can be difficult to know where to start. Understanding how well each of the firms on your roster meets expectations and how each one stacks up against the others in key performance areas is an important management insight. It can help control costs, improve legal outcomes and increase your in-house legal department’s value to the operation. While subjective impressions can be a good place to start, it’s not enough to rely on them – there’s simply too much at stake. A data-driven vendor management process that delivers actionable insights is greatly preferable.

A properly structured vendor management process provides many benefits. Among them, it helps corporate legal departments (1) objectively and consistently measure law firm performance, (2) integrate vendor management based on expectations set forth in billing guidelines, (3) select the best mix of law firms and strengthen those relationships, and (4) deliver and demonstrate greater value to the organization.

Getting Started

Developing and implementing a vendor management system is a multistep process. The first step is to choose the metrics that will inform the evaluation scorecard, which ultimately affects the law firm selection process. Price-related metrics may be a good place to start, for instance, but managing price is only one objective of legal operations.

Ideally, you want to create a comprehensive set of metrics that compares firms across a number of relevant variables – like matter cycle times, outcomes, adherence to billing guidelines, etc. To determine a set of metrics, it can be useful to conduct discussions with your in-house counsel. Asking them what sets a trusted, “go-to” law firm apart from other firms on the roster usually produces information about expectations that can be translated into metrics.

Subjective vs. Objective Metrics

When measuring law firm performance against expectations, objective metrics are used more frequently – and are ultimately more useful – than subjective ones. That said, there will be times that the metric you decide to use will be subjective.

For example, your in-house team may decide that “accurate case assessment” is a key expectation for outside law firms. While there are objective criteria that can be applied to this metric – such as budget accuracy – your in-house team may insist that subjective evaluation is still the most important means of determining accurate case assessment overall.

Even so, you can create a list of metrics that defines specifically what this means, such as “the case unfolded exactly as anticipated,” “there were some unanticipated issues” and so on. The goal is to avoid vague assessments like “average,” “good” or “poor,” which can mean different things to different people.

In most situations, however, objective metrics can be determined. Once again, the first step should be to develop a list of possible metrics, then choose the best one. For instance, a common expectation is that outside law firms should charge fair rates.

There are many potential metrics that can be used to see if they are doing so: You could use the weighted average bill rate for the work the firm does for you. You could look at just the rates for partners or associates. You could measure how the firm’s rate varies or compares to the median rate of all of your firms. These are all valid metrics, but you should pick just one.

There will likely be multiple categories you want to evaluate, but it’s a good idea to keep the group focused – ideally 12 or fewer.

Creating a Scorecard

Once you’ve determined the categories you want to evaluate and the metric you are going to use for each (again, pick only one metric for each category), create a scorecard for each category/metric. This will help you visualize the -information and make better decisions.

A good scorecard presents output that uses a common measurement scheme. For example, suppose the metric is “outside counsel fee paid per matter.” Determine what the ideal fee is, then create a scorecard that awards a score of 10 to firms that resolve matters for less than the ideal amount, with incrementally lower scores going to firms whose fees are higher.

Go through this process for each metric on your scorecard (again, no more than 12 – otherwise the whole undertaking becomes unwieldy). If you are unsure of the best way to establish the individual scoring thresholds, performing a historical data analysis can provide clarity.

Once the final output of each scorecard is determined, the data should be presented in a way that is visually meaningful (color-coding can help here). The goal is to create a straightforward way of seeing which firms are meeting each of your expectations.

Using the Scorecard as a Management Tool

Viewing your vendor scorecards as a purely administrative or operational exercise won’t result in the types of outcomes that characterize successful vendor management programs.

Rather, vendor scorecards should be looked at as a management tool that can help your legal department build better relationships with outside law firms, with the goal of improving both the outside firms’ performance and the in-house legal department’s performance as well. The scorecards are a tool that will allow you to determine which firms need improvement, while also documenting the qualities that make other firms good partners. This can help guide discussions about how to get firms to improve – and what steps to take if they don’t.