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GCs & law firm panels: An opportunity to partner with a legal finance provider

February 12, 2021

The majority (64%) of corporate legal departments report having a preferred provider network of law firm partners—and they routinely review and refresh these law firm panels, whether because a new GC has come on board and wants to vet the company’s law firm partners, or because the company wants to gain big picture control over costs, streamline legal strategy, assess law firm strengths and match the right work to the right law firm partner.

In recent years there has been an increase in such reviews, which often take the form of RFPs: In 2019, 32% of clients issued law firm RFPs, up from 25% in 2017. In the years ahead, panel reviews are likely to become even more frequent as a result of the pandemic, given shifting client need in practice areas such as litigation, employment and restructuring; more legal departments likely to consider firms with less concern for their physical location; and likely growing budget pressure on clients to find cost efficiencies.

The panel review process should also be viewed as an opportunity for in-house legal departments to explore innovative ways to manage legal expenses and generate cash flow—by partnering with a legal finance provider.  

The benefits of holistic reviews

If law firm reviews are going to increase in importance and frequency, it makes good business sense for companies to consider how to enhance this process and improve results for themselves and their partners. Arguably, one way to do so is by taking a holistic approach—for example, by looking not only at individual law firm rates but also considering costs and risk-sharing across the entire legal portfolio.

For that reason, legal finance should be part of commercially minded GCs’ panel review process.

Over half of in-house lawyers say their companies have abandoned meritorious claims due to cost—leaving millions on the table. However, an increasing number of GCs are using legal finance to avoid this situation and to proactively identify and optimize the value of their corporate litigation assets. They see opportunity to generate liquidity, create budget certainty and eliminate risk.

Legal finance complements many of the goals that typically inspire panel reviews:  

  • Offer better value alignment: Often, legal and finance teams have big picture budget goals in mind when they enter a review process. Leading legal finance firms can significantly augment this aspect of the review insofar as they will have significant expertise in quantifying and prioritizing legal risk that they can offer as a value add to companies.
  • Provide budget certainty: GCs often use panels to negotiate the best fee rates for the company. However, reducing hourly rates doesn’t mean achieving budget certainty when it comes to key litigations. Engaging a legal finance partner to fund fees and expenses for key commercial litigations as part of the review process can help to create the grounds for budget certainty and can support both affirmative and defense matters when sought as part of a portfolio based facility.
  • Streamline communication and reduce distraction: With fewer law firms to instruct, there are fewer administrative burdens on legal departments. That is a benefit inherent to the review process, but by additionally involving legal finance, GCs can move forward knowing that pricing, terms and risk-sharing are in place and needn’t be renegotiated, keeping the legal team’s focus, and the law firms’, on achieving success in litigation.
  • Improve work product: By treating panel firms as strategic advisors, GCs gain more value than they would by engaging many firms at a distance. Involving legal finance as part of this process similarly elevates their potential role from transactional to strategic—and is a significantly more efficient and effective process than working with legal financiers on a one-off basis.

How to assess legal finance providers 

By bringing a legal finance provider onto the company’s preferred legal service providers list during the panel review process, GCs can diligence legal finance providers prior to any potential claims and foster a partnership relationship. This will create cost efficiencies in the long run by dramatically reducing the time in which companies can work with their chosen provider to monetize or defray the legal cost and risk of pending affirmative and defense-side litigation when it arises.

Just as corporate legal teams need to be careful to engage the right law firms for their business needs, they should assess legal finance providers based on their “fit” for the size, duration and complexity inherent to commercial litigation. Indeed, research shows that the top criteria sought include:

  • Professionalism and transparency: Publicly listed legal finance firms with ample and diverse capital sources and established institutional processes will be more reliable long-term partners and a better fit for most corporations. Legal finance providers with significant in-house expertise and access to permanent capital also appeal to corporate teams given their more accelerated funding process.
  • Scale: Size matters for corporate legal teams whose legal finance needs may range from $10 million to over $100 million, most obviously because such a transaction should not be material to the provider and because capital must be reliably available throughout the lifecycle of financed matters.
  • Expertise: Corporate legal teams value capital providers with expertise and industry tenure whose lawyers and quantitative analysts can be strategic partners equipped to maximize the value of legal claims. Indeed many GCs and heads of litigation see their teams as a value add to their law firm litigators: Taking legal finance in no way alters their control of their matters but it can provide an extra (and cost-free) set of eyes on matters along with expertise in quantifying legal risk, litigation budgeting and modeling outcomes.

Just as legal teams value the benefits of having law firm partners with real insights into their business, fostering a long-term relationship with a finance provider allows the financier to better understand the company’s business and its goals and strategies. As Sabine Chalmers, Group General Counsel at BT, said of established law firm relationships: “We hope to foster closer relationship with a smaller panel such that firms can support us more effectively. Delivery of the right advice including the correct judgement call requires insight into our business.” The same applies in reviewing legal finance partners: When meritorious litigation arises, having those relationships in place will ensure value-added insights into business needs, align the interests of all parties and ensure that the process is as efficient as possible.