The legal landscape of 2012 is vastly different than that of a decade ago. Long gone is the time when cost was only one of many considerations in selecting a law firm and when inside counsel paid law firms huge fees with only a quick glance at the monthly bills. Today, legal costs are of utmost importance, with corporations greatly limiting their legal expenses, sometimes to less than one percent of total revenue. With increasing pressures both to keep legal costs down and to maintain a high-quality work product, corporations are turning more frequently to requests for proposals (RFPs) to identify, assess and select outside counsel.
RFPs serve as a formal offer to law firms to submit proposals for the provision of legal services. Although RFPs are most common in routine contract work, corporations are increasingly requiring them for more complex corporate litigation matters as well. According to a 2012 survey by LexisNexis, 42 percent of law firms have observed an increase in RFP activity over the past year (and another 42 percent believe that the RFP volume has remained approximately the same).
There is no doubt that a competitive RFP process can lead to cost savings for corporations. However, to maximize cost savings, in-house legal departments must determine whether an RFP is appropriate for a given matter. Although the corporation might have the upper hand in the RFP process, companies must use RFPs thoughtfully and selectively to reap their benefits. Drafting an RFP, deciding which firms to target, reviewing and evaluating the submitted proposals, interviewing firms regarding their proposals, and notifying and debriefing representatives of nonselected firms in individual meetings is both costly and time-consuming for a company. Before starting to draft an RFP, in-house counsel should ensure that the potential savings from issuing an RFP outweigh the cost and effort that the corporation would expend. A company should use an RFPs to test the market, not to imply that there is competition when the corporation has already decided to retain a specific firm or when it knows that it will not choose certain firms. For there to be competition, only two law firms need to submit proposals. Thus, savings can result from targeting an RFP at only a few select firms. Furthermore, a corporation should only request information that will be used in the evaluative process so that it does not spend time reviewing superfluous data in each proposal.
Although RFPs can be efficient in cutting costs in corporations, responding to RFPs can be very costly and time-intensive for law firms. According to the LexisNexis survey, large firms with more than 500 attorneys dedicated more than 4,000 hours on average to drafting and submitting proposals in the past year (the equivalent of more than two full-time attorneys billing 2,000 hours a year solely to RFP work). Despite these long hours spent on drafting proposals, there is no guarantee that a firm will win business based on its proposals. After all, in issuing RFPs, a corporation aims to create a competitive environment among law firms, in which it has the power to choose a firm that can produce a good outcome at a low cost. Thus, in determining whether to submit a proposal to a given RFP, firms should consider their knowledge of the industry, their experience in the type of work proposed and whether they have an existing relationship with the company. Additionally, even if not chosen, firms should learn from the RFP process by seeking feedback from the company, which can result in future successes with that company or others.
The use of RFPs for legal services is likely to continue to increase in the future. In-house counsel should work on refining their use of RFPs, only using them when the company is truly unsure of which firm to use for a given matter. This will create a sense of trust between inside and outside counsel, and it will result in more efficient time and resource management in both corporations and firms.