Organisations – both large and small, and whether in the public sector or private sector – may frequently seek external legal advice and use external legal advisors, even though they employ their own in-house solicitors. Managing the ‘outsourcing’ of the provision of legal services for an organisation is a key role of, and can pose challenges for, the in-house solicitor.

There are several reasons why organisations may seek to obtain external legal advice, including, but not limited to:

• Expertise – in order to obtain expert or specialist legal advice in a particular area (not within the core practice of the in-house legal function) or because of the infrequency, size, nature and/or complexity of the matter involved (including conveyancing, litigation, corporate finance, environmental, competition and technology matters),

• Workload – the capacity of the in-house legal function to take on extra work,

• Jurisdiction – the need to obtain local expert advice if a matter relates to the law of another jurisdiction,

• ‘Second opinion’ – in certain situations, an in-house solicitor may wish to seek a second opinion on a point (‘advice’ is just an opinion; there is no bar to an organisation receiving a second opinion on the same point, although difficulties can arise and consideration should be given to circumstances where the two opinions differ), and

• Sensitive matters – for example, in circumstances where a conflict of interest might, or might be seen to, create difficulties for the in-house solicitor in advising objectively, or in circumstances where a matter relates to parties related to the organisation (such as shareholders or non-executive directors or pension trustees) whose interests may not be the same as those of the organisation.

The in-house solicitor is best placed in an organisation to implement and manage the outsourcing of legal services. The in-house solicitor has their own legal expertise and the ability to ‘speak the language’ of both the organisation and the external legal advisor. Outsourcing of legal services may be more likely to achieve the organisation’s objectives if the in-house solicitor designs and manages the legal outsourcing process and structure, due to the in-house solicitor’s knowledge of:

• The organisation’s corporate structure, ethos, and business,

• The organisation’s place in the market and business strategy/objectives or its corporate purpose,

• How legal services are provided in the marketplace, and

• The legal risk management strategy that will have been developed by the in-house solicitor (or their legal function) following an analysis of the legal risks of the organisation by the in-house solicitor.

Instructions to an external legal advisor are likely to be most effective if they are provided by the in-house solicitor or, at least, from members of the organisation having received guidance from the legal function. In the event of a conflict of interest involving an in-house solicitor, the conflict should be disclosed to the organisation. In circumstances whereby business personnel within the organisation are instructing external legal advisors, it is suggested that such instructions should be monitored by the in-house solicitor. It should be made clear to external legal advisors that, regardless of the level of involvement of an in-house solicitor in seeking advice, the responsibility of the external legal advisor is to provide advice within the scope of the retainer contract or terms of engagement (see below).

In most cases, the in-house solicitor will remain the principal contact for the external legal advisor(s), and the external legal advisors should report into the in-house solicitor/legal function. The in-house solicitor should be kept informed at all times by the external legal advisor in relation to all legal advice and services being delivered to the organisation in respect of instructions received. There are several reasons why the in-house solicitor should be kept up to date, including:

• The in-house solicitor is best positioned to formulate and issue the organisation’s instructions to the external legal advisor (in line with the legal risk management and legal risk strategy for that organisation) – net issues can be identified by the in-house solicitor at an early stage and reflected in the instructions to the external legal advisors.

• Ultimately, the in-house solicitor must be satisfied that the legal advice received from the external legal advisors is relevant and ‘actionable’ from the organisation’s perspective. The monitoring of the ‘client’ instructions by the in-house solicitor is fundamental to obtaining the most appropriate, relevant, and cost-effective delivery of external legal advice and services to the organisation.

• It helps to ensure consistency of legal advice throughout the organisation and helps to ensure that, for example, there is no duplication or inconsistency of legal advice being delivered to the organisation (thereby creating confusion and wasting resources).

• It ensures the legal budget and legal costs/fees of external legal advisors are managed by the person who best understands them (the in-house solicitor). It also reduces the risk of incurring legal fees needlessly as a result of either unclear instructions or time spent on non-core or irrelevant issues.

• If the scope of the engagement needs to change, this can be appropriately considered and documented.

• The in-house solicitor is best placed to liaise with relevant internal stakeholders in respect of input queried in relation to the legal advice being requested.

• Depending on the subject matter of the engagement, communicating through the in-house solicitor could increase the prospects of successfully asserting legal professional privilege (see Chapter 4).

• The in-house solicitor may have a management or reporting role within the organisation in terms of reporting to senior management or the board of directors in respect of the management of the legal function and resources (both internal and external), and/or the legal risk strategy for the organisation or for any particular project.

There are some organisations where it may not be necessary or practical to have the in-house solicitor involved to the extent recommended above. There may also be situations where the in-house solicitor is not involved in external legal work. In those situations, it is important that the role, if any, of the in-house solicitor in the matter, and the limits on the in-house solicitor’s involvement, are clear.

It is suggested that organisations should have a documented policy in place (devised in consultation with all relevant parties involved, including the in-house solicitor), which details the ‘who, when and how’ legal work is outsourced. That policy could also include provisions in respect of dealing with conflicts of interest. External legal advisors to whom work is outsourced should be informed of the requirements of the organisation’s policies in relation to referrals to external legal advisors. As part of the terms of their engagement, external legal advisors should be advised to report all concerns/issues (including the functions, powers, and duties of the organisation and its proper implementation and application in accordance with the law) to the in-house solicitor. Finally, it will also be necessary to take into account any applicable procurement laws and guidelines and/or general procurement policies of the organisation in determining how legal work is outsourced.

Selecting the most appropriate external legal advisor(s) for an organisation and when to seek external legal services should ideally be decided in accordance with the documented policy outlined above or, in the absence of such a policy, by the in-house solicitor. As a subject-matter expert, the responsibility for the operational management of this function should ideally rest with the in-house solicitor. There are various ways of selecting external legal advisors, which vary depending on the size of the organisation, its need to outsource (as outlined above), its legal budget, and whether the organisation is within the public sector or the private sector.

Many larger organisations establish panels of external legal advisors, which are then available to take instructions when the need arises. The process of creating a panel of external legal advisors can be time-consuming and administratively burdensome; however, it does create opportunities to test the market and may generate price competition (depending on the value available). A panel of external legal advisors is not always the most effective method of engaging external legal advisors – for example, in circumstances whereby specialist legal advice is required in relation to a specific area, and the appointed panel is comprised of general external legal advisors as opposed to a panel of external legal advisors with specialist expertise. An in-house solicitor will need to consider the best method of engaging appropriate specialist external legal advisors. In certain circumstances, organisations may hold a form of tender or mini-tender competition in order to select or appoint such a specialist external legal advisor. Organisations may have a formal or informal selection process depending on several factors – for example, whether they are subject to procurement laws and guidelines, their internal procurement and corporate governance procedures, and whether they are in the public or private sector.

If establishing a panel of external legal advisors, selection criteria will need to be set governing selection to the panel (as further discussed below). If a panel of external legal advisors is established from those deemed capable of meeting the selection criteria, this could be for a limited period (for example, a fixed number of months or years). This enables the organisation to plan its legal resources in conjunction with the in-house function for the short and medium-term. An opportunity then arises on the expiry of such period to review the needs of the organisation for such a panel and for any new tendering or competitive process.

In terms of resources, depending on the need of the organisation for legal services or in relation to any particular area of legal services, there may be merit in limiting the number of external legal advisors on the panel and considering if you will require specific areas of expertise. In circumstances whereby an external legal advisor is appointed to a panel limited in size, it may provide an opportunity for that external legal advisor to:

• Develop a good understanding of the ethos and culture of the organisation,

• Develop an understanding of the complementary roles of the in-house solicitor, including the requirements and expectations of the legal function within the organisation,

• Understand their role as external legal advisor,

• Offer good service and value for money (depending on how the fees/cost structure is set up under the panel), and

• Demonstrate commitment to the organisation as an important client.

Selection criteria for choosing external legal advisors will depend on the objective for the organisation. It will also depend on the type of organisation and must take into account any applicable procurement laws and guidelines (which are particularly important in the public and utilities sector) and/or general procurement policies of the organisation. Selection criteria may include such areas as relevant expertise in a specialist area or areas of law, experience, cost-effectiveness, as well as the existence of any conflicts of interest with other clients of the external legal advisors. Such criteria could also include timeframes in respect of the delivery of the legal services (this could be a critical factor, for example, in certain matters, such as litigation or corporate transactions), availability and skill-set of key personnel or ‘lead partner(s)’, resources available to deliver the service, and back-up legal support. Factors such as diversity, environmental, social and governance repute, and use of technology are becoming increasingly important selection criteria for organisations seeking to appoint external legal advisors. Additional considerations could be the ‘value add’ that an external legal advisor brings to an organisation – for example, training, provision of legal updates, and secondments.

Another key factor to be considered when selecting external legal advisors is the fee/cost structure proposed by external legal advisors. An in-house solicitor may wish to consider how the proposed structure fits in with the overall approach to legal fees/costs in the organisation and/or the nature of the particular matters for which external legal services are being sought. The in-house solicitor will have a key contribution to make to the organisation as to how fees/costs should be structured. The in-house solicitor may wish to seek flexibility in terms of fee/cost structures – for example, a fixed or flat fee may be appropriate for some types of outsourced legal services, whereas discounted hourly rates or a capped fee may be appropriate for other types of legal services. There are varying degrees of control that can be exercised by the organisation in monitoring the legal budget, depending on the fee structure agreed, and this is considered further below.

In circumstances whereby the organisation or the in-house legal function decides that a panel of external legal advisors is not deemed necessary or practical, it may wish to consider conducting a mini-tender for specific projects. Such mini-tenders can allow organisations to choose from a number of external legal advisors with expertise in that particular area and may lead to higher quality advice and favourable fee structures for the organisation.

When outsourcing legal work to external legal advisors, there may be a possibility that particular external legal advisors will have, either at that time or at some future time, a conflict of interest.

Issues relating to conflicts of interest arise most often due to a client’s desire to instruct an external legal advisor in respect of a matter that has some connection with another (past or present) matter or client with which that external legal advisor was separately involved.

Best practice guidance regarding conflicts of interest for solicitors is set out in the Law Society’s Solicitor’s Guide to Professional Conduct (4th edition). An in-house solicitor should be as familiar with the guide as any other solicitor, as the same guidance applies. The guidance provided in respect of conflicts of interest for solicitors is clear, but external legal advisors will often only contract with clients on terms that modify those legal rules to give the external legal advisor the flexibility to deal with conflict problems as they arise. These modifications often seek to give the external legal advisor contractual flexibility and discretion (consistent with applicable regulations) to resolve conflicts in a way of their choosing. If not managed carefully, potential conflicts of interest involving solicitors’ (in-house and external solicitors) can create difficulties, reputational damage, and embarrassment for the in-house solicitor, as well as for the external solicitor and client.

A practical approach to conflicts of interest can sometimes help to provide acceptable solutions. A conflict check must always be carried out by external legal advisors prior to any specific instructions being provided on any particular project. The in-house solicitor is likely to have a greater understanding of the instructions that they want to give the external legal advisor. However, an in-house solicitor is unlikely to be aware of an external legal advisor’s other client relationships (and the legal advisor should not disclose these to the in-house solicitor). Accordingly, the conflict process should aim to give an external legal advisor as much information as possible about the project in order to seek to permit the external legal advisor to conduct a search of possible conflicts as carefully as possible. This can sometimes be an iterative process, involving increasingly specific disclosure as the in-house solicitor becomes more comfortable with the external legal advisor’s position.

However, even a very detailed conflict search may not reveal all latent conflict problems, and no conflict process can reveal problems that cannot be foreseen. It is suggested that the retainer contract or terms of engagement includes provision for dealing with and resolving any future conflict.

Where applicable, regard should be had by both the in-house solicitor and the external legal advisor to any possible competition law (for example, market abuse) implications of a conflict check.

While it is primarily the responsibility of the external legal advisor to ensure that no conflict of interest exists when representing an organisation, the organisation’s in-house solicitor should be mindful of the rules governing conflicts of interest. The in-house solicitor should take steps to ensure that external legal advisors undertake checks to ensure that no such conflicts exist. In addition to the steps mentioned above, prudent steps include requesting external legal advisors to outline any actual or potential conflicts of interest before they are instructed to act for an organisation. Any actual or potential conflicts of interest that arise during an engagement should be immediately brought to the attention of the in-house solicitor for consideration.

In circumstances where the external legal advisor is a barrister, the Bar of Ireland has published a code of conduct for barristers, a copy of which is available on its website at www.lawlibrary.ie.

It is a legal requirement that clients are made aware of the legal costs for the provision of any legal services provided by a legal practitioner. The information must be provided in writing – commonly referred to as a section 150 notice (Legal Services Regulation Act 2015) – in clear language that is likely to be easily understood by the client and to be provided after receiving instructions and before providing any legal services. As an alternative to a section 150 notice, there is a section 151 agreement, which is an agreement on legal costs. However, the provisions of a section 150 notice must be contained in the agreement, and no other amount can be chargeable other than what is specified in the agreement. For more details and precedents on the section 150 and section 151 agreements, see lawsociety.ie.

There are various fee structures that can be considered when engaging external legal advisors, such as fees based on hourly rates, a flat or fixed fee, capped fees, retainer fees, blended rates, or discounted fees. It may be appropriate to put different fee structures in place for different types of legal services. External legal advisors may demonstrate flexibility with respect to rates and fee structures, including (but not limited to) discounted rates assuming certain volumes of work, reduced fees for unsuccessful matters or aborted transactions, fixed fees for certain types of work, and special rates for external legal advisors to go on secondment to the organisation. An external legal advisor’s willingness to depart from hourly rates will usually depend on the organisation’s ability to negotiate such arrangements with them. An in-house solicitor’s familiarity with the going rates and fee structures for the services of external legal advisors is therefore important in ensuring that the organisation obtains value for money, while also ensuring that the external legal advisor is satisfied with the fee structure.

In addition, in advance of engagement, it is recommended that fee quotes are obtained from external legal advisors in respect of all legal services to be outsourced. Such fee quotes may be based on the fee structures agreed in any retainer contract or terms of engagement. Such fees should outline the proposed scope of services and fees up to completion and post-completion matters. When detailing the costs included in the fee quote, an in-house solicitor may wish to consider requesting a breakdown of the proposed fees in terms of partner/resources/hours anticipated. The in-house solicitor may wish to discuss the proposed fee with the external legal advisor and seek to agree a fee quote in advance of commencement of the legal services. Detailing these proposed fees for the legal services should assist the organisation to ensure that an appropriate budget is set aside in respect of the provision of legal services on any specific matter or transaction.

Ongoing fees charged for a matter should be monitored by the external legal advisor and the in-house solicitor having regard to any quotes originally submitted. The retainer contract or terms of engagement may require the external legal advisors to keep the in-house solicitor (or relevant instructing party) informed on a regular basis regarding the level of fees being incurred, fees that have not yet been billed (and, in particular, where any estimate or cap is being approached). In-house solicitors often require external legal advisors to seek explicit instruction prior to exceeding a fee proposal, allowing both parties to negotiate fees for any additional engagement or over-expenditure from the initial fee quote.

Section 150(5) of the Legal Services Regulation Act 2015 requires legal practitioners, where they become aware of any factor that would make legal costs likely to be incurred in a matter significantly greater than anticipated, to provide the client concerned with a new notice.

An in-house solicitor may wish to agree with an external legal advisor the timing in respect of when invoices should be raised – monthly, quarterly, at the end of the transaction or particular milestones, on reaching any agreed fee cap, etc. To ensure that there are no surprises when invoices are actually issued by an external legal advisor, in-house solicitors should ensure that they review the invoice prior to it being paid to ensure the services described and hours worked are accurate or as agreed. A prudent step in this regard would be to consider instructing the external legal advisor to issue proposed invoices initially in draft format or provide a bill of costs and to identify any fees already incurred or invoiced, thereby ensuring that any issues are picked up and resolved before the final invoice is issued. It is suggested that final invoices should only be issued once the in-house solicitor is satisfied with the content of the draft invoice or bill of costs (as the case may be).

Although the format of a bill of costs may vary depending on the external legal advisor, they must comply with section 152 of the Legal Services Regulation Act 2015. In-house solicitors may request that the external legal advisor issues a detailed bill of costs, including descriptions of work performed by each fee-earner, a breakdown by time, and the total time billed by each fee-earner. In practice, it can sometimes be quite difficult for the in-house solicitor to discern, based on such information, the value attributable to certain matters. This is especially the case where the matter is large, prolonged, involves many legal advisors, or if the external legal advisor charges for its time on the basis of ‘minimum units’ (where the time itself is not charged, but an estimated ‘minimum unit of time’ is charged). Unless the information relates to a very recent period and the in-house solicitor reviewing the information has been directly and closely involved in the matter or transaction, it may be difficult to evaluate the breakdown of the bill of costs. It is possible to subscribe to services that review legal bills and claim to identify areas where the bill of costs does not conform to the term of engagement or retainer contract, thus enabling errors to be identified and corrected. For more details and a precedent on a section 152 bill of costs, see lawsociety.ie.

One of the duties of the in-house solicitor may be to help coordinate the process for paying of external legal advisor fees. This will require involvement in the review and billing process described above and, if applicable, ensuring the smooth operation of any fee payment systems that the organisation or external legal advisors have established.

Any circumstances requiring an organisation to seek legal advice is likely to relate to a matter relating to a risk or perceived risk for the organisation, and the legal advice process can itself have an impact on the risk in a situation.

The scope of external legal services required should be carefully considered in advance. While an external legal advisor is required to issue a section 150 notice, it is common that organisations and external legal advisors negotiate detailed terms relating to an engagement, using the external legal advisor’s letter of engagement and standard terms or a contract form prepared by the in-house solicitor. In-house solicitors should consider the terms to be covered in the retainer contract or terms of engagement including, but not limited to, the following:

• Method of instructions and scope of the engagement,

• Key personnel responsible for the provision of the legal services (including at the correct expertise level: trainee, junior solicitor, associate and/or partner),

• Resources,

• Conflicts of interest,

• Professional indemnity insurance,

• Limitations of liabilities,

• Reporting requirements,

• Fee structure and the process for invoicing/billing,

• Intellectual property rights,

• Confidentiality and information security,

• Provisions relating to the termination of the engagement, and

• Ongoing reviews and the organisation’s right of review of the performance of external legal services.

Ongoing monitoring of the external legal advisor by the in-house solicitor should also be considered to ensure that the organisation is getting a satisfactory level of service or service in accordance with the retainer contract or terms of engagement. There are two aspects to this:

• ‘Transaction management’, or the monitoring of the performance of the services, including the professional resources used, and

• ‘Relationship management’, or the monitoring of the relationship between the organisation and the external legal advisors.

Any retainer contract or terms of engagement will usually reserve the right to the organisation to have its in-house solicitor carry out reviews of the performance of the legal services by the external legal advisors. The organisation will typically seek expertise, appropriate response times and, where larger external legal advisors are instructed, prompt access to a senior legal advisor, lead advisor, or client-relationship partners of the external legal advisor when required. As the in-house solicitor will be expected to provide relevant advice and input to the organisation, it will be of particular importance that the legal advice obtained is specific, practical, and readily applicable to the particular situation, rather than theoretical or equivocal.

If an external legal panel is in place, it is suggested that an annual review of each of the external legal advisor’s performance should be conducted to identify any issues. Similarly, a review of the external legal advisor’s performance should ideally be conducted after each major transaction or matter. Such review may take into account the fees being charged by the external legal advisor in question to ensure that the in-house solicitor’s organisation is obtaining value for money and a satisfactory service. Such steps will also provide the external legal advisors with an opportunity to provide feedback in respect of the client (which the in-house solicitor should consider and, where appropriate, address any issues).

Getting and demonstrating value for money was the theme of the 2019 In-house and Public Sector Panel Discussion covered by the Gazette in the article ‘As tiers go by’ (July 2019, p22).

David Rowe, chartered accountant and director of Outsource, wrote ‘Stick or twist?’ (March 2021, p44), in which he explored the timing for in-house and public sector legal teams to go to the market for external legal services.