It has failed before, but a new breed of client is attempting to build models to rate their external advisers. Michelle Madsen reports

The task of ranking law firms, for years the preserve of hefty legal directories, now appears to be a challenge that a handful of major clients are ready to take on. In this case, corporate counsel who are under pressure to show they are getting value from their legal spending are searching for ways to monitor, codify and, perhaps even share information on the performance of external counsel.

This is not, in itself, new. Stumbling attempts to rank advisers began to emerge in the late 1990s with the introduction of panels and commoditisation of some areas of legal services. However, such attempts were generally stuttering and unsuccessful.

But there are signs that some companies are revisiting the concept. Recently, a handful of major companies – most notably Swiss-based financial services giants UBS and Zurich – revealed that they had put in place formal ranking systems in response to the pronounced legal service inflation of recent years.

In the more ambitious venture of the two, UBS has set up an extensive system for ranking its external firms off the back of a comprehensive panel review designed to make a dent in the bank's legal bills, which it estimated to have reached nearly 1% of the banking giant's revenue.

By looking at seven different criteria – including practical, technical, deal-making, strategy and managerial skills as well as pace of work and cost – and ranking external firms in these areas on a five-point scale, UBS general counsel Peter Kurer hopes to gather solid data to demystify the process of legal billing to colleagues in the business (see box).

Putting such grading systems into place is not for the fainthearted. UBS assigned a senior lawyer, Christoph Kurth, the bank's group head of litigation, to the task of creating the scorecard system, which took several months to complete and was launched this summer. Kurth says the system is still a work in progress and that UBS is looking to take into account other factors in the future, such as the profitability of legal advisers, their infrastructure and administration.

But there are signs that the initiative has caught the attention of a number of senior corporate counsel who have considered similar models.

In the case of Zurich, UK general counsel James Butler is overseeing the launch of a similar venture at the financial services group. He tells Legal Week that the project, which began piloting last year, is due to be extended.

Zurich's ranking model is somewhat different to that of UBS, as it in addition seeks to collate impressions and comments of corporate counsel on their experiences of advisers, functioning almost like an in-house legal directory for the company.

Zurich's ranking system also asks in-house lawyers to compare their own impressions of a firm with the perception a firm has of itself. This means the legal team must rank law firms in tiers and form a critical judgement on whether they should reasonably charge a premium for their services.

While both UBS and Zurich have turned to numerical systems to quantify the benchmarks they are laying out for different levels of service, legal directories such as Chambers & Partners and the Legal 500 in the UK and Martindale Hubbard in the US base their rankings on anecdotal reports from clients and other lawyers in the market.

Tagging individual lawyers with snappy sound-bites like 'level-headed operator' or 'tough cookie' may not be an exact science but, given that so many law firms use comments from legal directories in their marketing material, it carries a certain kudos.

But what is the scope for clients to effectively and practically rank outside counsel? It must be said that a number have tried and abandoned such ventures, finding them too time-consuming or unwieldy.

National Grid general counsel Helen Mahy says she tried to institute a grading system for external lawyers with her in-house team but the attempt had failed because it was too subjective.

In contrast, Richard Hennity, UK general counsel at HSBC, argues that keeping such grading systems simple is the key to producing comparable data, even if it is drawn from subjective individual responses.

"If 100 people say a firm is great then we would be more likely to use them," he says. "It is also useful for the firms and some partners that we have worked with say that it provides them with invaluable feedback about where they are going wrong."

HSBC is two months into a formal ranking project of its external lawyers. Having historically used hard copies of comments from users of the bank's panel firms, the new online system grades external advisers on a scale of one to five over five different criteria, including speed of response, quality of advice and value for money. The scheme is part of a push by HSBC to gather more information both from its law firms and about how its advisers are perceived by the business.

Hennity adds that the grading system had been designed to clarify the value of external advice to the business.

"The majority of HSBC instructions to outside counsel come from people within the business," he says. "The legal team has a fairly good barometer of what the quality of a firm's work is, but we really want to know what the front-office thinks."

Anthony Armitage, former Commerce & Industry Group vice president and head of legal consultancy First Law, says giving law firms rankings is about more than just helping in-house teams justify their budgets – it is also about forcing law firms to become more transparent about their costs.

"We have been trying to do ranking of lawyers for a long time, but firms just do not want to put in the information," he says. "We compile information on every tender but we do not make this publicly available due to the attitude of some of the firms that we are dealing with."

Acting as a panel broker for a clientele mainly composed of public sector bodies, Armitage says more in-house teams should follow the lead of UBS, HSBC and Zurich if they really want to have the power to demand value for money from their firms.

"Many general counsel say it is too difficult to act upon the impulse to rank firms, claiming that the nature of legal work is too complex to quantify," he says. "This is something that law firms will be pleased to hear. But the fact of the matter is that some people have started ranking firms and it has worked. The task of ranking firms does get complex with different types of work – you have to look at different types of standard transactions and then look at how much different types of lawyers charge."