Redefining Outside Counsel Relationships: Performance, Not Hourly Rates

Redefining Outside Counsel Relationships
Redefining Outside Counsel Relationships

For years, the relationship between in-house legal teams and external counsel has been defined by the billable hour.

The model has endured, not because it consistently delivers value, but because it has been familiar, measurable and administratively simple. Yet pressure on budgets, expectations of transparency, and a sharper focus on business outcomes are reshaping how in-house teams want to engage with their firms.

The conversation is shifting from time spent to performance delivered.

The problem with hourly billing

Hourly billing is simple on the surface: lawyers record time, clients pay for it. The challenge is that it rewards activity rather than results. A junior lawyer who takes twice as long to draft a contract costs the client more, even if the outcome is no different. For in-house teams under pressure to prove their own value and efficiency, paying for inefficiency makes little sense.

This does not mean firms are intentionally wasteful. Instead, the problem lies in the structure itself. It sets incentives that are not aligned with the client’s goals. Where the business wants predictability and outcomes, the firm is rewarded for time logged. It is this misalignment that is driving change.

The move towards performance-based models

Across industries, procurement teams measure suppliers against clear performance metrics. In-house legal teams are now applying the same logic to their panels. Rather than treating legal services as a black box, they are defining what good looks like and measuring firms against it.

This approach does not necessarily exclude hourly rates altogether, but it reframes them as just one of several inputs. The emphasis shifts to the overall value delivered: did the firm help close the deal faster, manage the risk more effectively, or resolve the dispute on favourable terms?

Scorecards as a tool for accountability

One of the most effective ways to shift from time to performance is with scorecards. These provide a structured way to assess firms across various dimensions, including the quality of advice, responsiveness, efficiency, collaboration, team diversity, and cost control.

For example, a global bank might use a quarterly scorecard to review its top five firms on these measures. Feedback is gathered from the in-house lawyers who worked directly with the firm. The results are then shared in relationship meetings, with scores linked to future instructions and actions. Firms that consistently perform well see their share of work grow, while those that underperform may lose ground.

This approach introduces transparency and fairness into the relationship. Firms understand how they are being evaluated and can identify areas where improvements are needed.

In-house teams gain data that supports decisions, reduces subjectivity, and aligns the relationship with business needs.

Feedback as an engine of improvement

Scorecards are most potent when paired with regular feedback. Rather than relying on annual panel reviews, many legal teams are now embedding feedback loops into their processes. After a matter closes, a short survey can be sent to the internal stakeholders who dealt with the firm.

These insights are then shared with the firm in real time, allowing issues to be corrected before they become entrenched. For example, if an in-house lawyer notes that a firm consistently delivers late drafts, the feedback can trigger a conversation about resourcing or communication.

This kind of feedback culture requires openness on both sides, which in turn creates stronger partnerships. Firms that listen and adapt are rewarded with repeat work. Those who do not may find themselves quietly phased out.

Technology-enabled panels

Technology is playing an increasingly important role in moving from time-based billing to performance-driven engagement. Modern matter management and eBilling platforms can capture data on spend, turnaround times, staffing patterns and outcomes. This information can be combined with feedback and scorecard ratings to provide a comprehensive picture of the firm’s performance.

Some organisations are going further by building dynamic panels, where performance metrics guide allocation of work. For example, a platform might automatically suggest alternative panel firms based on criteria such as cost predictability and internal satisfaction scores. New matters can then be routed to the firm best positioned to deliver value, rather than defaulting to the same provider.

This data-driven approach creates competition and accountability, ensuring that firms continue to perform if they wish to retain their share of the panel. It also allows in-house teams to demonstrate to the broader business that their external legal spend is being managed strategically and with clear return on investment.

Benefits for firms as well as clients

Although this shift is often framed as a client-driven agenda, firms also stand to gain. Being measured on outcomes allows firms to differentiate themselves on quality, creativity, and client service, rather than being seen as interchangeable suppliers of hours.

Firms that invest in project management, technology, and efficient delivery models can clearly demonstrate their value. By understanding the client’s definition of success, they can align their teams and processes accordingly. In many cases, this leads to deeper, longer-term relationships that are more sustainable than those based solely on hourly rates.

Building the future of engagement

For in-house teams, the move away from hourly billing is about more than cost and control. It is about redefining what value means and building partnerships with firms that share that vision. Scorecards, feedback loops, and tech-enabled panels provide the structure to make that vision real.

This shift does not need to happen overnight. Many legal teams start by piloting performance measures with a small number of firms or on a particular type of matter. Over time, the data builds, the processes mature, and the culture of outcome-based engagement becomes embedded.

The message is clear: the days of paying for time alone are fading. In-house legal teams are seeking performance, accountability and partnership. Outside counsel who embrace this shift will not only meet client expectations but thrive in the new landscape.

This article was originally published on our sister site lawcadia.com.

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