How to Build Outside Counsel Guidelines That Actually Work - and Enforce Them
Custodia Advisory | Private Equity | Legal Spend | July 2026
Most institutions that have an Outside Counsel Guideline problem don't have a drafting problem. The document exists. The rates are defined, the staffing expectations are set, the billing format requirements are clear. What's missing is everything that happens after the guideline is signed and filed.
Building an OCG that actually works means thinking about enforcement from the beginning — not as an afterthought once the document is finalised, but as the design principle that shapes every clause.
Here's how to do it.
Part One: Building the Guideline
Start with what you actually need to control
The most common OCG drafting mistake is copying a template — either an industry standard or a guideline from a previous firm — and adapting it lightly for the current institution. The result is a document that covers categories of risk the institution doesn't have, and misses the ones it does.
Before drafting a single clause, audit your current billing history. What are the firms actually billing for? Where are the disputes, the queries, the write-offs? What categories of disbursement are appearing that no one anticipated? What rate increases have been applied without discussion? The guideline should be built around the billing reality of your specific institution, not a hypothetical one.
Cover the categories that matter most
A well-structured OCG addresses the following as a minimum:
Rate structures and approval Define the rates agreed with each firm, the process for any future rate change (advance notice period, written approval requirement, effective date), and what happens if a firm bills above agreed rates — automatic rejection, required credit, or a defined dispute process.
Staffing and supervision Set expectations around seniority levels for different matter types. Routine work should be staffed at junior levels; partner involvement should be reserved for matters that genuinely warrant it. Define supervision ratios where relevant — the number of junior timekeepers per supervising senior on a given matter type.
Time recording Require task-level time entries. Block billing — a single entry covering multiple tasks — should be explicitly prohibited. Minimum time increments should be defined. Entries should describe work with enough specificity that a reviewer can assess whether the time was reasonable.
Disbursements and third-party costs Define which disbursement categories are recoverable, which require prior approval, and which are not recoverable under any circumstances. Require itemisation above a defined threshold. Cap travel and accommodation costs where relevant.
Scope and prior approval Define what constitutes out-of-scope work and require written approval before any out-of-scope work is performed and billed. This is the clause most frequently ignored in practice — and the one that creates the most significant billing disputes.
Invoice format and submission Specify the format invoices must follow, the billing cycle, the submission deadline, and what happens to invoices submitted outside that cycle or in a non-compliant format. E-billing platform requirements should be specified here if relevant.
Audit rights Include an explicit right to audit billing records. This clause signals to firms that the guideline is enforceable, not merely aspirational — and it creates the legal basis for any recovery exercise that follows an audit finding.
Build in annual review as a standing obligation
An OCG that isn't reviewed is an OCG that ages out of relevance. Billing practices evolve. Firms expand into new service lines. New matter types emerge that the original guideline didn't contemplate. Rate structures shift.
Build annual review into the document itself — a defined date each year at which the guideline will be reviewed, updated where necessary, and reissued to all panel firms. This turns review from a good intention into a standing obligation.
Part Two: Enforcing the Guideline
Enforcement starts at procurement, not at approval
The single most important structural decision in OCG enforcement is where in the workflow the check happens. If invoices are reviewed for guideline compliance only after they've reached the deal team or finance for approval, the enforcement is happening at the wrong point. By then, the invoice has already been implicitly validated by the process of reaching that stage.
Enforcement should sit with procurement, at first review, before the invoice moves anywhere else. Procurement's job is to confirm that the invoice is OCG-compliant before it enters the approval workflow. Non-compliant invoices should be returned to the firm at that stage — not flagged as a note for the approver to consider.
Train the people doing the checking
An OCG is only as good as the people applying it. Procurement and finance teams who receive invoices need to know, specifically and practically, what to look for — not just that a guideline exists.
Training should cover the breach patterns that actually appear in your billing history: block billing, unauthorised rate increases, staffing above agreed levels, vague disbursement descriptions, out-of-scope work billed without approval. It should also cover the escalation process — what to do when a breach is found, who to notify, and how to communicate a rejection to the firm professionally and without creating unnecessary relationship friction.
The goal is not to turn procurement into a legal team. It is to give procurement the specific knowledge and confidence to do one job well: check the invoice against the guideline before it moves forward.
Create a consistent escalation process
Not every billing irregularity warrants the same response. A vague disbursement description is a different matter from a systematic pattern of rate increases applied without approval across multiple matters. The escalation process should reflect that distinction:
- Minor or isolated irregularities — returned to the firm for correction or clarification, logged, resolved at procurement level
- Repeated irregularities from the same firm — escalated to legal or relationship management, with a formal written record of the pattern
- Significant or systemic non-compliance — escalated to senior management, with a decision required on whether to initiate a formal recovery process, renegotiate the relationship, or remove the firm from panel
Document every step. The log of how individual irregularities were handled is both a management tool and, if a formal dispute ever arises, a critical piece of evidence.
Conduct periodic audits — not just reactive checks
Invoice-by-invoice review catches individual irregularities. It doesn't necessarily catch the patterns that only become visible when you look across a larger dataset — a firm that has been incrementally billing above agreed rates across dozens of matters, for example, or a disbursement category that has been creeping upward across multiple years.
Periodic audits — ideally annual, covering the full billing history for the period — are the mechanism for catching those patterns. They should be conducted independently of the people doing day-to-day invoice review, and the findings should feed directly into the annual OCG review cycle: if an audit uncovers a category of non-compliance, the guideline should be updated to address it explicitly.
Close the loop with outside counsel
Enforcement is not adversarial — or it shouldn't be. The most effective OCG relationships are ones where the expectation of compliance is clearly communicated, consistently applied, and professionally managed. Firms that understand they will be held to the guideline, and that non-compliance will be flagged and followed up, tend to comply. Firms that have learned, over time, that nothing happens when they drift from agreed terms will keep drifting.
A simple annual communication to all panel firms — confirming the current guideline, noting any changes from the prior year's version, and reaffirming the expectation of compliance — does significant work. It removes any ambiguity about whether the guideline is current and whether it is being enforced. And it creates a clear record that the expectation was communicated, which matters if a formal dispute ever arises.
The Result
An OCG that is well drafted, annually reviewed, enforced at the right point in the workflow, and backed by trained procurement teams and periodic audits is not just a cost control tool. It is a governance framework — one that demonstrates to investors, auditors, and regulators that the institution manages its legal spend with the same discipline it applies to everything else.
That is, ultimately, what Outside Counsel Guidelines are for. Not to create friction with outside counsel, but to create accountability — on both sides of the relationship.
This is where Custodia Advisory can help
Building an Outside Counsel Guideline that works — and keeping it working — is exactly what we do.
We've reviewed hundreds of outside counsel guidelines and billing policies across mid to large private equity and investment management institutions. We know what good looks like, what the market is currently asking for, and where the gaps most commonly appear. More importantly, we know the difference between a guideline that reads well on paper and one that actually holds up when an invoice lands and someone has to make a decision.
When we work with you on your OCG, we start with a conversation — not a template. We sit down with you, understand your specific requirements, your current outside counsel relationships, your deal flow, and the internal capacity you have for enforcement. We look at what the market is doing, what your peer institutions have in place, and what your current billing history is telling us. Then we build something tailored to your firm — not a document adapted from someone else's.
The result is a guideline your procurement team can actually use, your outside counsel will understand, and your investors and auditors will find defensible.
Let's have that conversation →
In our next post, we broaden the lens further — to fund expense allocation, one of the least scrutinised areas of PE cost governance, and one of the most exposed under investor and regulatory review.
Custodia Advisory — custodiaadvisory.com