Extracting More Value
Author: Richard Stock - Lexpert, September 2015 at pg 78
RFPs are an essential tool to secure value from (crucial to driving value at) law firms. A few key questions should be on every list.
THROUGHOUT THE MONTH of June, I had several dozen meetings with corporate and government law departments, law firms and alternative service and technology providers working in the legal space in Canada. Meeting with such a variety of organizations in such a short time frame offers a good understanding of the challenges and opportunities for big law, for start-up law firms, tech providers, alternative service organizations and, of course, for corporate and institutional law departments.
The relationship between a law firm and its most significant clients are strategic, professional and economic. A recent study of general counsel found that expertise and relationships still trump cost when selecting counsel. The median rating (out of 10) for significance of the selection factors were: understanding the business (9); referrals and recommendations (8); personal contact (6); and expertise (6). Cost ranked lower than any of these factors.
No surprise then that 14 out of 15 successful responses to requests for proposals (RFPs) for legal services are from existing providers, despite the fact that only 17 per cent of chief legal officers believe that their lead law firm is significantly more competitive than its closest competitor. While banks, utilities, insurers, pharma and some manufacturing are forcing change in the business arrangements with their law firms, there is little evidence of cost-reduction pressure for law departments. Everyone wants a bigger discount and to believe that they enjoy a "most-favoured nation" status for their legal fees, but ultimately, it seems to be enough to live within approved budgets and to have predictability on what individual matters will cost, even if that means paying 15 per cent more than they would with a more rigorous approach to retaining external counsel.
Companies have far to go to link fees to performance by their law firms. CLOs do not prefer structured processes and RFPs to secure legal services. They seldom have the methodologies, the discipline or the patience to embrace procurement and strategic sourcing for legal services.
Many firms in the United States and Canada, on the other hand, have hired directors of pricing and legal project management (LPM), with expertise in alternative fee arrangements and responding to RFPs. These roles are the natural counterparts to corporate procurement and sourcing officers - something that makes sense for a law firm to have when you consider that 20 per cent of the specialists in legal services procurement are lawyers, and most of the others have MBAs.
A law firm would do well to act pre-emptively to secure long-term arrangements with its top 25 clients, even if the work does not result from a successful response to a formal request for services. Many corporate initiatives to request proposals for external counsel are rudimentary at best, especially when it comes to alternative fee arrangements and to making longer-term commitments for work volumes to fewer firms. Many GCs are still convinced that they "hire the lawyer and not the firm," rather than "the lawyer and the firm." That begins to explain why a recent review of the websites of Canada's 20 largest law firms found that only four firms made more than a passing mention of their interest and capabilities in non-hourly billing.
The reality is that most RFPs reveal very little about the client's selection criteria and work allocation processes. Robust LPM is rarely applied to complex work. And chief litigation officers are not at the cutting edge of sourcing and alternative fee arrangements. Jose Pariente, the former chief strategic sourcing and procurement officer at White & Case LLP, suggested that the effectiveness of RFPs can be improved if they ask the right questions:
On experience: “How does your firm envisage capitalizing the knowledge and experience already acquired by supplying services to us to ensure a constantly diminishing learning curve?”
On people and relationships: “What is your firm's experience, if any, in preferred supplier relationships with clients? What have you discovered works well in such relationships and what does not?”
On fees: “Briefly describe anything we as a prospective client could do differently to help the firm drive efficiency.”
On value-added services: “Please provide three examples of value-added services which you offer to other clients and that you do not currently offer us.”
On performance: “Describe how your firm tracks and measures quality and service performance.”
The very best law firms receive requests for proposals on a weekly basis. The scope and quality varies greatly. All law firms should be able to re-think, adjust, and deliver the additional value they offer to their clients. They have the opportunity, the motivation and the means to do so.