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: The client has a significant amount of “buying power” and thus can make demands of its law firms to ensure uniformity in its representations and to manage its costs.

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. Below are some guidelines of your own for navigating these situations:

Review the Guidelines

Outside counsel guidelines, particularly where countersigned by the attorney and client, can have the same binding impact on the parties as would a traditional attorney-client engagement letter. When receiving outside counsel guidelines, some law firms may be tempted to skip over the “fine print” and to assume that most terms of the outside counsel guidelines are standard or routine. Some firms may even send the client the firm's own engagement letter in response to receiving outside counsel guidelines, which could result in a set of conflicting terms.  

Failing to fully read and appreciate the outside counsel guidelines can create significant risk for the law firm. Some firms will have their in-house general counsel or another designated individual review all guidelines for all the firm's clients to help ensure consistency firmwide. Law firms may find themselves in a difficult situation if they do not comply with a client's guidelines because they failed to read them. Such a defense may not be particularly strong in a subsequent dispute or may otherwise create friction with a client that could be avoided.

Is There Risk to the Firm?

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. In addition to reading and reviewing the terms of the client's outside counsel guidelines, it can be helpful for the law firm to ascertain whether the standard outside counsel guidelines create risk for the law firm.

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.  

It may be that the law firm feels the risks are manageable, but many law firms in this situation will consider whether to negotiate the terms further.

Can the Firm Comply?

Reviewing the outside counsel guidelines and assessing the potential risks is just part of the process. Many firms will also have a frank consideration of whether compliance with the outside counsel guidelines is feasible. 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.  

Cybersecurity protection also is important to many clients. Some outside counsel guidelines will require a specific protocol or level of cybersecurity protection. This requires a critical eye from the law firm to ascertain realistically whether it can meet the client's expectations. Indeed, a smaller law firm may not have the internal cybersecurity protocols in place that a client would require. The law firm then creates risk by failing either to adapt to the guidelines or to discuss with the client what is possible.

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. At the outset, the law firm can either take steps to comply with the protocols or can advise the clients as to the level of protection the firm is able to provide. And yes, attorneys and law firms can raise potential issues to the client, and the parties may be able to negotiate on that point, as well as others. 

Pay Attention to the Details

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.

Some guidelines may include minute details relating to billing or staffing. If a firm's team members do not pay attention to the specific details, law firms run the risk of being short-paid or not being paid at all. For example, some guidelines might limit the number of attendees at a deposition or might require preapproval for any air travel for a matter. Thus, failure to seek permission for such events before they occur may make it harder to get costs reimbursed in a timely manner. 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.

Shari L. Klevens is a partner at Dentons in Atlanta and Washington, D.C., and serves on the firm's U.S. board of directors. She represents and advises lawyers and insurers on complex claims and is co-chair of Dentons' global insurance sector team.

Alanna Clair, also a partner at the firm in Washington, focuses on professional liability and insurance defense. Klevens and Clair are co-authors of “The Lawyer's Handbook: Ethics Compliance and Claim Avoidance” and the upcoming 2020 edition of “Georgia Legal Malpractice Law.”