Outside Counsel Guidelines vs. Engagement Letters: What’s the Difference?

If your organization works with outside law firms, you’ve likely heard of engagement letters and outside counsel guidelines (or OCGs). Both are important documents in managing legal relationships, but they serve different purposes.

While they may seem similar at first glance, each plays a specific role in setting expectations, controlling legal costs, and avoiding misunderstandings between your company and external legal providers.

In this article, we’ll explain the difference between the two, how they work together, and why it’s smart to use both.

What Is an Engagement Letter?

An engagement letter is a formal, matter-specific agreement between your organization and a law firm. It outlines the details of a specific legal matter, including what the law firm is being retained to do, how much it will cost, and who will be responsible for the work.

Usually, an engagement letter will include the following key components:

• A summary or description of the legal issue or case

• The scope of services to be provided

• Names of the attorneys or team members assigned to the matter

• The agreed hourly billing rates or alternative fee arrangements

• Invoicing and payment terms (e.g., monthly billing cycles, due dates)

• Confidentiality and conflict-of-interest clauses

• Terms for terminating or amending the agreement

It can be considered as an official contract for one particular project or legal matter that defines the parameters of the engagement in clear terms, reducing ambiguity and setting expectations on both sides.

Since engagement letters are usually signed by both parties, they are legally binding, meaning both your company and the law firm are held accountable for the terms outlined in the document. This helps to avoid disputes down the road and provides a reference point if questions arise during the course of the engagement.

What Are Outside Counsel Guidelines (OCGs)?

Outside Counsel Guidelines (OCGs) are broader, company-wide policy documents that outline your organization’s standard procedures, expectations, and requirements for working with outside law firms. Unlike engagement letters, which are tailored to specific matters, OCGs are universal documents that apply across all engagements unless explicitly stated otherwise.

These guidelines are typically drafted by the in-house legal department or legal operations team and are shared with every law firm your organization works with. They may not require a signature but are often referenced in engagement letters, which makes them enforceable as part of the working relationship.

OCGs commonly include policies related to:

• Billing procedures (e.g., time entry requirements, billing increments)

• Use of staff and staffing efficiency (e.g., leveraging paralegals for routine tasks)

• Restrictions on expenses and disbursements (e.g., limitations on reimbursable travel costs)

• Required use of e-billing platforms or designated invoice systems

• Standardized communication protocols (e.g., regular matter updates, budget reporting)

• Data protection, cybersecurity, and confidentiality measures

• Requirements for running conflict checks and regulatory compliance

• Escalation paths for billing disputes or service issues

In short, OCGs serve as your company’s rulebook for legal vendors. They allow your organization to standardize how legal services are delivered, control costs, and streamline the vendor management process, especially if you work with multiple firms.

For law firms, having clear OCGs helps eliminate confusion and gives them a clear understanding of how to work within their expectations, especially when handling high-volume or long-term engagements.

Key Differences Between the Two

While engagement letters and OCGs are both important in managing outside legal work, their functions, focus, and structure are quite different. Here is a quick comparison showing the key differences between the two:

To put it simply: engagement letters focus on the "what and how much," while OCGs deal with the "how and under what conditions." Both are necessary to form a well-rounded, transparent legal relationship.

Why You Should Use Both

Some companies, especially smaller legal departments, may use only one of the two, often the engagement letter, believing it covers everything. However, relying on a single document can leave room for billing misunderstandings, compliance gaps, and inconsistent practices across matters.

So, using both together creates a stronger framework as:

• Engagement letters ensure each legal matter has a clear scope, agreed-upon rates, and defined responsibilities. They protect both parties by laying out terms in writing.

• OCGs ensure that all your outside firms follow uniform standards and best practices, regardless of the matter type or practice area.

Together, they help reduce friction, align expectations, and provide your legal operations team with the structure it needs to control costs, improve billing accuracy, and drive better overall legal vendor performance.

Tips for Using Engagement Letters and OCGs Together

When used together, engagement letters and OCGs form a comprehensive, strategic approach to outside counsel management. But it’s important to ensure the two documents don’t conflict or cause confusion.

Here are some practical best practices to keep in mind:

1. Always reference your OCGs in the engagement letter:  This simple step makes it clear that the law firm must comply with the broader policies outlined in your guidelines. A standard clause might read: “This engagement is subject to [Company Name]’s Outside Counsel Guidelines, dated [insert date].”

2. Review and update OCGs regularly:  As your organization evolves, whether in terms of technology, compliance requirements, or internal priorities, your OCGs should be updated to reflect those changes.

3. Communicate updates clearly:  Don’t assume your law firms are tracking changes on their own. Provide a clear version history and notify them of updates to ensure everyone is aligned.

4. Ensure internal alignment:  Make sure your internal legal team, legal ops staff, and accounts payable departments all understand how the documents work together and how to enforce them.

Following these steps helps create a more professional, proactive relationship between your organization and external counsel, built on transparency, accountability, and mutual respect.

Want to learn more about outside counsel guidelines or engagement letter templates? We’re here to help.

Whether you’re starting from scratch or just looking to optimize your current process, our team can guide you in building a framework that works for your legal department and your outside firms.

Reach out today to schedule a consultation.