Legal Project Management 101: Why Scoping Matters

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Scenario (a true-life debacle, presented with altered identifying information)

In November 2012, Steve, a Senior Vice President at Mega-Bank, hired outside counsel to handle what seemed like a routine corporate transaction. The firm took on the matter and performed the legal work and documentation the Bank needed.

In January 2013, at the closing table, Mega-Bank asked to see the firm’s billings, because they were to be paid from the transaction proceeds. The firm faxed over the bill, which totaled $95,000, to the closing agent. Steve was flabbergasted: in his extensive experience in similar transactions with other firms, the legal bills had ranged between $30,000 and $35,000. The highest bill he had ever seen for this type of transaction was $60,000, and that stemmed from some serious complicating factors not present in the instant situation.

This $95,000 bill almost cratered the transaction because the other parties had expected legal bills in the $30,000 range. To get the deal done, the bank had to agree to pay for part of the legal fees. The firm also agreed to reduce its bill somewhat.

Afterwards, Steve demanded the billing details from the firm. The firm initially resisted providing individual timekeeper detail – not such a great client relations move — but eventually did provide the requested information. Steve found that in December 2012, the firm had deployed 16 associates to work on this utterly routine matter. Steve had had dealings with only one or two associates during the deal – never 16! He was accustomed to billings, in other similar matters from other law firms, for no more than two associates, one partner and perhaps a paralegal. He was confounded by the use of additional 14 associates, though he suspected that year-end associate hours targets were being partly filled on his matter and his dime.

Unlike in fairy tales, there is no happy ending to this story.

True, the Bank and the firm hammered a compromise, but everyone came away unhappy. The Bank had to pay out money it had not expected to spend, eroding the underlying deal’s profit projection. The firm partner had to write off time, which impacted both the firm’s profit and his own compensation. Worst of all, he lost a client – though as this is written he may not know it yet. Steve is not the kind of guy who “fires” firms. But I can tell you, paraphrasing Taylor Swift’s words, “We are Never, Ever Getting Back Together Again.”

What Went Wrong? Let Me Count The Ways!

This situation careened off the rails at the very beginning – at the Scoping stage. In Legal Project Management, scoping is an essential first step in clarifying the client’s goals, the deliverables the firm will provide and the expected costs for delivering the work.

It’s easy (and certainly correct) to point the finger at the partner who failed to nail down Steve’s fee expectations. After all, the Bank had done dozens and dozens of similar transactions, and those would have established a solid precedent, or at least set the bar on fees. Did the partner even know that this engagement was one the client considered a “routine” deal? If he didn’t, he was guilty of failing to scope the project before diving in.

But let’s not lose sight of Steve’s failings either. He had a clear, but unexpressed, expectation of the legal fees that he thought made sense for this deal. He had lots of experience with the types of issues that could arise in the deals and what the most typical issues would be. Yet he erred in not proactively providing the law firm any information other than the broad contours of the deal. He could/should have said something like:

We have done 62 of these deals so far and the fees are typically between $30 – $35,000. That’s what we have told the other side, as they will be paying your fees. If issues arise, these are the most likely ones we can anticipate: [a, b, c, and d]. And, if any of those arise, please let me know right away so I can manage expectations.

But he didn’t, thus triggering the winter of his discontent.

The Dimensions of Scoping

Effective project scoping is a number of things:

  • An opportunity for detailed information gathering and  information sharing
  • A collaboration
  • A negotiation
  • A discussion of possible events that can impact costs, scope or timing
  • An agreement about who will do what and when
  • An opportunity to assure alignment and build trust and rapport

Bad scoping does not require villainy, greed or incompetence. It just requires a failure to communicate about each of these areas, coupled with the willingness to act on untested assumptions. This war story clearly illustrates a fundamental LPM maxim: Thorough up-front scoping beats damage control, any day.