Weighing the Costs

How Luke Mette significantly reduced spending with a data-driven approach to billable hours

Six years ago, AstraZeneca’s global general counsel, Jeff Pott, challenged the legal department to rethink the company’s use of outside counsel. Luke Mette, deputy general counsel of litigation, didn’t just think about it: he devised a unique plan that challenges antiquated billing strategies, ensures maximum savings, and inspires healthy competition. The result is a core group of preferred outside counsel. “We knew that we had great lawyers internally and externally,” Mette says. “What we really were trying to get after was the cost.”

To create a baseline, the finance department helped Mette analyze litigation’s external expenditure by tracking accrued spending on a monthly, quarterly, and annual basis. Armed with solid data, his team created a five-point strategy for keeping costs in check.

First, Mette’s team relies heavily on feedback and support from the finance department. Second, as part of their timekeeper and work stream controls, the litigation department restricts the number and identities of approved timekeepers via the electronic billing system. The in-house legal team proactively approves all work streams to prevent payment of unauthorized work. Third, Mette looks to use relatively low-priced law firms for certain types of matters and litigation. “We are very comfortable using firms with lower cost bases and rates than some of the larger firms in the larger cities,” he says. Fourth, where applicable, his department performs an early case assessment to ascertain if a resolution, rather than litigation through trial, is appropriate.

Not all of these ideas are unique, but what differentiates Mette’s approach is his fifth tactic: rate control. Called the “weighted billable hour average,” this internally developed idea focuses on the weighted average rate of a team of lawyers rather than the rate of an individual lawyer.

For example, when Mette retains a firm, he might have three different lawyers billing during a month. Using easy math as an example, say the associate charges $100 an hour for five hours, the junior partner charges $200 for two hours, and the senior partner charges $300 for one hour, totaling $1,200. For these eight hours worked, the weighted billable average comes to $150 an hour. The $150 per hour rate, not those of each lawyer, is the number he cares about, negotiates on, and uses to compare firms. “We find that this promotes efficiency by encouraging the firms to introduce [AstraZeneca] to rising stars—newer lawyers who have lower rates.”

The outcome of Mette’s unconventional approach has been successful. The deployment of the weighted billable hour corresponds with a downward trajectory of aggregate legal spending in the litigation group over the last several years. “As soon as we adopted this approach,” says Mette, “our aggregate legal spend reduced by 9 percent one year, then 9 percent again the next year, and 18 percent most recently.”

While all five controls contribute to that reduction, Mette underscores the weighted billable approach as the primary factor. “Part of the reason why I think it’s been successful is that we have very smart people here in the litigation group,” he says, “and they are attuned to possible weaknesses in the approach that they have addressed.” Such potential weaknesses include an outside law firm stacking the deck with young associates or engaging in unauthorized work. The electronic billing system and his team’s active engagement head off these concerns before they can develop into an issue. “The overall goal for our litigation group is to deliver value to our client, the company, by getting great litigation results at a lower cost,” Mette adds.

Though Mette and his team have reduced costs to AstraZeneca significantly, there’s still work to do. “The question to be solved is whether some firms are simply more efficient than others,” he says. That is, even if their rates are higher, can they deliver the same quantum of work for a lower aggregate cost? “We call that the efficiency quotient.”

Mette wants to encourage law firms to revisit cost competition. Specifically, this could be done by offering a certain category of work for a lower aggregate cost.

In his experience, most firms have been open-minded and receptive to this approach. Several years ago, many law firms and corporate clients estimated fixed fees based on unreliable data, ultimately breeding mistrust and poor relations.

“We now have a more reliable data set to work off of, so instead of just putting our finger in the air and guessing what an aggregate, fixed-fee cost should be, I think we can come up with a more reliable, data-driven estimate,” Mette says. With significant proven cost savings and strengthened relationships, Mette expects to see more companies adopting the five-point method.