Stephen Lloyd Counsel to Counsel News

For a company considering buying legal services on a "retainer" basis, what do you think are the most important pre-conditions?

I don't think it's feasible for a company to instruct a new law firm on a retainer basis - there must be a pre-existing relationship between the two parties first. Both parties must have gotten to know each other, and develop a relationship of mutual confidence. In addition, for a retainer to work, the client must be able to offer the law firm a significant body of work.

In Canada, it's helpful if the client and their law firm can complement each other from a geographical perspective. Ideally, the client will not have a dedicated legal function on site in all of its business regions. If the law firm does operate from these regions, it can effectively "cover" for the client at its regional sites.

Who will normally take the lead in drawing up a retainer agreement - the law firm or the client?

To be honest, retainer agreements are pretty rare, so it's difficult to generalise. In the retainer agreements I have been party to, it's been the general counsel who takes the lead in the negotiations. They're the ones who decide how much legal work they want to send to their outside counsel. However, in light of our positive experience, as outside counsel we are now just as likely to suggest the concept to our clients as they are to us.

Your firm has a long-standing retainer agreement with one of your major clients. Can you describe how it works?

All new matters come in through one central "gatekeeper" - me - and I assign the work within the firm. Likewise, overall quality and "chemistry" issues are dealt with between the general counsel and me. However, once the instruction is received, our lawyers and the company's operational business managers will liase with each other directly, on a matter-by-matter basis.

As a firm, we keep track of the work being done for the client - which can be quite a challenge. At any one time, our firm might be handling between 50 and 60 different matters for the client. Once a month, we put together a chart, showing who worked on what, how much time was spent, and the average hourly rate of the person working on each project. This chart allows the client to understand what's been done, and the level of expertise that's been bought to bear on each project.

How do you monitor how much work you are performing for your client?

All new matters come in through one central "gatekeeper" - me - and I assign the work within the firm. Likewise, overall quality and "chemistry" issues are dealt with between the general counsel and me. However, once the instruction is received, our lawyers and the company's operational business managers will liase with each other directly, on a matter-by-matter basis.

As a firm, we keep track of the work being done for the client - which can be quite a challenge. At any one time, our firm might be handling between 50 and 60 different matters for the client. Once a month, we put together a chart, showing who worked on what, how much time was spent, and the average hourly rate of the person working on each project. This chart allows the client to understand what's been done, and the level of expertise that's been bought to bear on each project.

The idea is to keep the retainer roughly balanced with what the equivalent "standard" billing result would be, based on an agreed-upon average hourly rate. In most months, we come out slightly behind, but in the context of our overall relationship it all comes out in the wash.

What happens when there`s an exceptional matter they would like you to handle?

There is a clear distinction between what is known as "general commercial work" - which is included in the retainer - and "exceptional" projects, which aren't. General commercial work includes drafting commercial contracts, uncomplicated stand-alone real estate work, litigation under C$100,000, and ordinary regulatory infractions.

Special projects would include M&A or joint venture advice, major litigation work, or formal legal opinions requiring partner-level expertise. If the client asks to use a particular partner because of their high-level expertise, we'd normally classify that as a special project.

What are the main advantages to both parties to this arrangement?

For the client, the main advantage of this arrangement is that it allows them to control their costs. Companies can ask for legal advice, without the fear of running up a huge bill. The arrangement also provides the general counsel with greater legal scrutiny over their company's commercial dealing. It spreads the influence and geographical reach of the legal department beyond what they would otherwise be able to achieve with their own resources.

For our firm, it's good, solid, work for young lawyers - and the client understands this. If we only used senior lawyers, the arrangement wouldn't make commercial sense. We use the work to train up young lawyers to become familiar with the legal issues involved. When they become more experienced and expensive, they're replaced with more junior staff.

Because the arrangement is designed to be long-term, we've really got to know the client's particularities - how they like to draft their clauses, how they like to handle dispute resolutions, how they approach their contactors. Our lawyers often visit the client's operational units, and we require them to get to know how the business works.