Bill Ackman, Nelson Peltz, and other activist investors have been in the media for some time now, demanding companies to cut (more) costs in addition to growing revenue. They are not alone with their demands for cutting costs. We can see a clear trend in the legal industry: For years, legal services used to be largely exempt from the intense cost scrutiny other business units and functions have been facing for years. This is no longer the case. Legal spend has become a line item that few CEOs or CFOs can ignore. In more and more companies around the world, legal procurement – the purchasing department or corporate function responsible for acquiring goods and services – is quickly gaining importance in sourcing legal services and managing relationships with law firms.
Procurement applies business discipline to legal services. It is generally much less focused on relationships with trusted firms than the legal department. It compares and contrasts law firms, uses data and develops evidence-based rationale for major reductions in legal spending.
According to studies of the trade organization Buying Legal Council, the main drivers to bring in procurement are the desire to:
- Managing cost/reducing supplier spend
- Ensuring that the company buys goods and services in compliance with company policies
- Making sure the company gets good products and services from reputable suppliers.
- Achieving more objective comparisons of legal service providers through measuring and benchmarking outside counsel’s value
- Streamlining operations
- Improving efficiencies
- Finding better ways to structure fee arrangements
- More reliable budgeting
- Increasing predictability and transparency.
Why legal procurement? Could the legal department itself not apply business discipline? Yes, however, many CEOs and CFOs believe that the legal department benefits from procurement’s core competencies in getting better value from its suppliers. Top management is convinced that legal procurement can make value-added contributions that go beyond what any functional department like legal could accomplish by itself. Involving procurement in the sourcing of legal services has worked in other functional areas and there is no reason to believe that this won’t hold true for legal.
Learn more about legal procurement approaches and join us in London on 28 September to discuss EFFICIENCY in legal work and in Chicago on 19 October to discuss METRICS & BENCHMARKING.