Open your Mouth or Open your Wallet

My grandfather loved getting a good deal and didn’t hesitate to bargain. He applied “Open your mouth or open your wallet” to anything from buying skis to outdoor garden furniture. When his neighbors complained that they didn’t get the same low price or the upgraded version, he would say “well, you didn’t ask for it, did you?”

Are you like my grandfather’s neighbors? D. Casey Flaherty says some clients are. He found that clients aren’t asking law firms to change the way they deliver services. Firms might realize they need to change and become more efficient while remaining effective. However, unless you ask and tell the firms specifically what you want and how they can add value, firms won’t know what will satisfy you and your organization.

Casey warns that asking for discounts doesn’t do the trick as it is unlikely to modify the firm’s and their lawyer’s behavior. Instead, open your mouth and ask questions such as: To improve legal service delivery, what does your firm do to leverage your legal expertise through process and technology? Do you have credible evidence (descriptions and metrics) of your process improvements and innovation? To learn more, read Flaherty’s White Paper Unless You Ask, A Guide for Law Departments To GetMore From External Relationships”published by the ACC.

Asking is particularly relevant for RFPs. 

Matt Prinn of K&L Gates recently hosted a special session for us, titled “RFPs: Insights from a law firm’s perspective”. As a business development professional in a large law firm, his team answers hundreds of RFPs every year. Prinn found that some RFPs ask much better questions than others.

Examples of BAD questions are:

Are you willing to charge [company] on a ‘most favored nations’ basis (i.e., rates no higher than those charged by your firm to your largest and most influential non-pro bono client)?” Prinn says: “I’ve never seen a law firm agree to this. No smart firm would say yes, since we have clients of all shapes and sizes. Why would we give you the same deal we give a $20 million-a-year client if you are giving us $50,000 of work?”

“Please enter a rate for the following titles. The below rate will be the rate for all people of this title. For example a $500 partner rate means all partners would bill $500.” Prinn says: “This particular question was for an RFP touching on half a dozen different practice areas across a few continents. Some areas were very complex bet-the-company work, some more commodity-level work. Firms can have offices in low cost areas of the world and in high cost centers. Law firms understand the idea behind a blended rate, but to think that we would charge you the same price per hour for a bet-the-company case as we would for a standard matter is unrealistic. You will not the get “A” level lawyer if you force the firm to commit to fixed rate well in advance of them knowing anything about the matter or the surrounding facts. Firms will include a number as requested, but have no intention of being held to these numbers if the matter requires top lawyer in a high cost market. No firm is likely to ever staff a $900-an-hour lawyer on a significant matter for the client if they were expected to tie it to the blended rate which could be hundreds of dollars cheaper. Firms will either pass on the project or require a separate fee structure. You can’t trick a firm into doing a matter at a huge loss.”

So what should you ask in your next RFP?

  • When asking firms to price matters/matter portfolios, provide detailed information on budgets and historical legal spend in each legal area you want firms to bid on.
  • If you include a rate card, provide a detailed narrative on how it should be interpreted.
  • If you expect a minimum discount level, make it clear at the start of your RFP.
  • Be transparent on how many rounds of pricing negotiations you plan to have.

The above materials are accessible on the Buying Legal Council Members website.

The Buying Legal Council is the trade organization for professionals tasked with sourcing legal services and managing legal services supplier relationships. We support our members through advocacy, networking, education, research, and information. Our mission is to advance the field of how legal services are bought.

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$2,000 per hour? What Legal Procurement Should Do Now

The time to tighten one’s belt seems to be over – at least for some lawyers.

Starting salaries for lawyers right out of law school have just been raised at some firms. According to a Wall Street Journal article, New York firm Cravath Swaine & Moore increased its starting salary to $180,000, effective July 1. It was reported that the (unusual) midyear pay raise has immediately been matched by at least nine other law firms.

After breaking through the $1,000 per hour rate limit in 2011, the highest paid partners in New York have just broken through the $2,000 per hour limit. Similarly, top London lawyers now command more than £1,000 per hour.

All the more reason for Legal Procurement to stay on top of things! So what can you do to manage spend?

Insist on Business Process Management: 

No business of any size can work without using some version of Business Process Management. The idea of structuring activities or tasks that produce a certain outcome dates back to 1776 when Adam Smith described the processes in a pin factory. It’s about time we’re applying the principles to the legal category: Understanding and documenting key processes leads to better matter management through better scoping, planning, and budgeting. 

Here is how you can distinguish firms that are best in class: 

  • In your next RFP, ask firms how they will manage your work. Look for examples of business process maps that the firm has used to optimize and manage their work.
  • Ask how their work on business processes has contributed to an improved customer experience and higher quality of service (and more efficiency!).

To learn more about Using Business Processes for the Legal Category, become a member and read Ian Stockley’s “Cheat Sheet” in the Members-Only area of our website.

Insist on Alternative/Appropriate Fee Arrangements (AFAs):

Firms often say that clients don’t want AFAs. Why wouldn’t you? AFAs generally aim to align legal cost with the value of the services rendered rather than how long it took outside counsel to deliver the service. However, to successfully embrace AFAs, you need to know whether you’re getting a good deal from your firms.

Here is how you go about it:

  • Build your own data set of comparable matters. Know the market and understand how much different aspects cost. What are the price drivers? Introduce competition.
  • Survey the market and when bidding out matters, make assumptions so firms can properly price their services. It needs to be clear to both parties how the firm should deliver its services. Who will be working on the matter? How many documents will be reviewed? How many weeks or days of trial do you anticipate?
  • Define success. Are both you and the firm clear about what counts as a “win”?

To learn more about Success with AFAs, become a member and read Justin Ergler’s “Cheat Sheet” in the Members-Only area of our website.

If you are not (yet) a member, sign up today. (At currently $500, Buying Legal Council Corporate Annual Membership costs less than one hour of a partner and our Individual Annual Membership of $185 is like an hour of a paralegal. Prices are valid through August 31.)

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5 things you should do to succeed in buying legal services:

  1. Look beyond Discounts: In the legal category, value gains come through process improvements, service unbundling, innovation, risk reduction, and incentive alignment, and not via discounts. The real opportunity lies in identifying the ways in which firms & suppliers can help you better meet your organization’s business objectives, consume less, and become less expensive to serve. To read Gerard Chick’s LinkedIn post, click here. Firms create value by reducing costs, reducing waste, and improving process controls.
  2. Focus on their Strengths: What are different firms and suppliers best at? Use “requirement segmentation” as your key cost reduction driver. Which matters or phases require local knowledge? What could be offshored? To read Anupam Razdan’s and Vincent Gautheron’s slides from the Buying Legal Council Legal Procurement conference in London, click here: http://www.buyinglegal.com/formembers
  3. Phase your Goals: Divide your goals into smaller, phased outputs. Establish an agenda of recurring topics you discuss with your colleagues in Legal: e.g. in February, prepare a synopsis of what happened in the past year. In April, review Q1 and take a fresh look at your Billing Guidelines. In July, review Q2 and examine selection and evaluation processes. To read Magen McClintock’s Cheat Sheet on “How to Make Yourself Indispensible”, click here: http://www.buyinglegal.com/formembers
  4. Establish Reference Points: Develop/get access to a fully maintained rates database. Use reference points that cannot be argued (such as location and work type). Understand where the market is going, and what pressure the law firms are under at the time you are agreeing the terms of the contract. To read Nick Mirabella-Williams’ slides from the Buying Legal Council Legal Procurement conference in London, click here: http://www.buyinglegal.com/formembers
  5. Use the Right Metrics: “It’s becoming harder and harder for legal departments and law firms to ignore the useful data that modern technology can extract from the outputs that everyday operations provide. (…) Lincoln Financial Group has gone so far as to use metrics to calculate win rates. The company measured ‘wins’ by combining settlement costs with legal costs on similar high-volume matters. It discovered that the results combined with the legal costs varied markedly among external counsel. Consequently, it has started moving business to the firms with the best ‘win’ record.” To read the article “Using data to select external counsel” and other articles on legal procurement, access our article log on Legal Procurement. Click here: http://www.buyinglegal.com/articles If you have written an article on legal procurement or have read an interesting article on legal procurement we haven’t listed yet, please let me know! 

 

 

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