A new paradigm has emerged for corporate legal departments and law firms, which poses cultural, operational and technological challenges for both types of organizations. With corporations demanding fiscal accountability from their in-house legal teams and outside counsel firms, procurement departments are being engaged to help law departments leverage the power of data-driven decision-making to source external legal service providers.
All stakeholders — from legal departments to law firms — must learn to address the unique perspective of corporate procurement departments. Success in this environment demands a willingness to compromise, revise or even eliminate long-standing practices in order to operate more efficiently. Ultimately, the goal for the legal department, procurement department and law firms is one and the same: to receive and deliver the highest possible value for the legal services provided.
There are several objectives that general counsel and other corporate leaders typically have when they engage their procurement team in securing legal services. The most common is a reduction in the roster of outside counsel law firms, a process known as convergence. This step can obviously help minimize the overhead that comes with managing a high volume of law firm relationships. But the greatest value in convergence is the ability to truly make the law firm a partner to the business. With a reduced panel, legal departments have more time to share the business objectives with the firm and collaborate to help law firms work towards those goals.
In addition to law firm convergence, the procurement department can also help in-house teams:
- Reduce duplication of work across regions
- Improve coordination between firms to achieve the best and most consistent outcomes
- Ensure that the volume of work you send is leveraged when engaging outside counsel
- Find ways to improve transparency around rates, AFAs and pricing in general
As you prepare for discussions with law firms, aided by your procurement colleagues, you will need reliable market and internal data available for your reference. Specifically, you should have industry benchmark data against which you can compare proposed pricing, and your own historical matter data from an enterprise legal management (ELM) system, which can guide your expectations of future cases.
When you have your data gathered and are beginning to source legal services with your procurement colleagues, it’s a good idea to keep the following questions in mind. These considerations will help you ensure that the law firm’s investment in your business is reflected in both the level of service and the pricing they offer.
What is the best way to define the scope of the engagement when speaking with outside firms?
It’s natural for law firms to want to reduce their risk by keeping the scope of the engagement broad, accounting for all possible contingencies. Conversely, the procurement team’s preference is to “put a fence” around the engagement to keep costs from escalating over the lifecycle of the matter. It is in your best interest to strike a balance between these two ends of the spectrum. In-house attorneys should collaborate with the law firm and refer to your past matter information to ensure the scope adequately represents a realistic level of effort with an adequate degree of flexibility.
How will you define the success of the engagement and the relationship?
Openness and discussion among all parties is essential when determining what constitutes success. The law and procurement departments need to be certain that the success criteria align with the general counsel’s strategic goals or desired outcome. Some matters should be resolved quickly and efficiently, at the lowest cost. While for others, reaching a positive outcome for the business is what matters most and costs are much less of a concern. To avoid confusion, it’s important that your legal and procurement departments share an understanding of the corporation’s goals before talking to firms.
What level of transparency should the corporation require of law firms relative to rates, alternative fee arrangements, and profitability?
With the procurement team involved, there is likely to be much more emphasis on data. You should have as much transparency as possible into the law firm’s operating costs, proposed rates and willingness to enter into AFAs. The firm should take the opportunity to justify its proposed fees with supporting data. Since the firm may worry about the changing process affecting the relationship, you can assure the firm that the involvement of procurement will not dismantle the existing relationship between the two organizations. Rather, it will enable in-house attorneys to make more informed decisions by leveraging the power of data analysis and performance measurement during the selection process.
What technologies and data elements are necessary to adequately define and monitor key performance indicators (KPIs)?
It is recommended that you adopt a clear set of KPIs and evaluation criteria, along with industry benchmarks, which you can share with the law firm. The KPIs you set should be aligned with your business success criteria, which the procurement department can help to prioritize, as well as those of the law department. Sharing those KPIs with firms is a recommended best practice that can help to ensure that they fully understand your expectations and goals. Set against the important backdrop of market-wide benchmark data, the proper KPIs will help you to measure the value of your ongoing relationship with the firm.
As with any new process, challenges sometimes result from working with your procurement department, but they are worth overcoming. When you work together with procurement professionals using market benchmarks and an ELM platform that captures your historical matter data, it can support your efforts to improve outcomes, operational efficiency and pricing. Once the right mix is found, you can realize important tangible benefits, such as allowing attorneys more time to focus on what they do best — managing the practice of law.