Power of a Well-Drafted RFP
Author: Richard Stock - Lexpert (June 2014 at p. 66)
ABOUT SIX YEARS AGO, law firms were faced with a sudden demand from their clients to freeze rates for a year or two. Prior to the economic crash, the cost of legal services had not been a real consideration when selecting primary counsel. The recession changed all that. Now, however, rates are starting to creep back up by an annual average of 5 per cent.
Things are different, though. Institutional legal departments — financial companies, utilities and governments at all levels — are more strategic in sourcing external counsel. Requests for proposals are increasingly based on good data and cover blocks of legal work lasting several years at a time. They have the infrastructure in procurement and the scale to develop specifications related to professional services.
That being said, only a minority of companies rely on matter management and billing payment systems, enabling them to capture and analyze law firm activity and costs. Other companies have no choice but to ask their law firms to give them detailed historical data from which they can estimate work volume by legal category and jurisdiction.
Coming up with these RFP estimates can be a stressful experience for members of the legal department, who worry they will be in interpreted as “guaranteed” volumes for the future. This concern is addressed by segregating the estimates into regular work and exceptional work (such as transactions or class-action litigation).
Keep in mind that RFPs can be designed to achieve more than getting firms to reduce or contain their prices. They should include questions about law firm business plans, attrition rates, quality-assurance mechanisms, and their relative sophistication with legal project management. Global companies entering markets where legal counsel are not well known will want to know about supply chain management — how their primary law firms manage relationships, quality and the costs of associated firms. And finally, the RFP should ask firms to detail the extent of non-hourly billings and performance-based fee arrangements.
Legal departments are surprisingly reticent to probe deeply into these areas. Yet it is the only way to create a level playing field among firms vying for the work. It is also a way to stimulate innovation by the law firm, especially as it concerns legal project management, the use of technology in service delivery, the management of associated firms, and performance-based pricing.
The hardest part about writing specifications for an RFP is the qualitative component. The refrain “I will know quality when I see quality … or lack of it” is heard too often. Relationship-based, intuitive evaluations are fine, but they offer little in evaluating and comparing the technical and legal competence of a law firm.
A good RFP asks for examples of similar matters completed for other clients. It asks for authorization to speak with three to five significant clients. While some firms will refuse these requests, others will be enthusiastic about the opportunity to discuss their successes - especially those regarding complex work. National and global law firms are not equally gifted in every legal category and for every jurisdiction where a company may want to do business. It pays to do the research.
Requests for proposals are less about taking work away from existing firms than they are about having all firms meet rising non-financial expectations and cost reductions. To make their case, most law firms will be prepared to fly in key partners, but general counsel must be proactive in telling the firm who needs to attend and what specific questions the firm must be prepared to answer. Some of our recent meetings to interview law firms have included participation by regional relationship partners, specialists in legal project management and “global pricing officers”. Many legal departments are too passive in managing the evaluation of proposals for services.
The cost of legal services can be greatly influenced by RFP specifications that suggest the relative number and complexity of matters and the preferred configuration of legal-service teams. Specifications can be explicit about planned reductions in external spend and about average annual increases. The most progressive RFPs are committed to moving away from individual and other hourly rates and toward alternative fee arrangements that are at least partially performance-based.
A good request for proposal for legal services is explicit in its specifications for coverage, competence and cost.