All corporate law departments want to know whether they have the right firms handling the right type of legal work at the right pricing structure. This article explores how the request for proposal (RFP) selection process has evolved into a powerful strategic and operational initiative. The first section will discuss how the RFP of 2015 has expanded and matured in four key areas. Increasing the use of AFAs is a goal for most corporate law departments and is a common 2015 RFP inquiry. The second section will focus on analyzing various firm responses to a typical AFA general inquiry. A firm’s AFA response provides valuable insight into a firm’s willingness to alter its traditional billing arrangement.
RFP evolution and expansion
1. Tier 1 firms
Several years ago, corporate law departments rejected the idea of forwarding an RFP to any Tier 1, large global law firms. Moreover, there were always several firms that would decline to participate in a RFP initiative. Fast forward to 2014-15 where, while working with a recent corporate law department client, all but one of their 70 nominated law firms answered a RFP response. Most significantly, all of the global Tier 1 firms asked to participate responded. Due to rise of non-traditional legal service delivery models, the Mega firms (1000+ global lawyer firms), the “silk stocking” firms, the Magic Circle firms, and the highly sought after boutique specialty firms are now participants in the RFP law firm selection universe — game changer, indeed.
2. Quantity and quality of information requested
The depth, quality and quantity of information requested has also changed. The primary considerations for participating in an RFP process have been and will always be practice group expertise, geographic coverage and pricing. What has changed is that firms are required to codify their individual teams in each practice area. Who are the exact partners, associates and paralegals proposing to do the work in which specific practice area? How many years of experience does each individual practice team member have? Diversity? Rate? Results? Rather than listing all of the lawyers in a given practice area, the focus should be a deep dive of just the proposed small practice area team’s qualifications. The more granular the questions are for the proposed practice area teams, the more powerful the cross-firm comparison data will be for the decision-making.
3. Legal service delivery transparency
Almost all corporate law departments are straining to meet the increasing legal and regulatory demands under their ever shrinking legal budgets. The 2015 RFP should address specific steps on how the law firm can aid the corporate law department with an efficient legal service delivery model. Requesting information about a firm’s budget process, document and e-discovery handling, LPO experience, legal project management, knowledge management and technology sharing provides a powerful lens into the law firm’s approach to the business of practicing law.
4. Corporate law department and firm value discussion
There is no question that surviving the first cut of an RFP review is based on having the requisite legal qualifications and pricing structure. That said, many times a firm’s response to a value question is an important criterion when there is a choice between two equally qualified firms. The corporate law department is looking for a marriage between its values and the firm’s on individual timekeeper diversity, pro bono activities, sustainability, security or training.
One area that corporate law departments value greatly in RFPs is the firm’s experience with non-traditional fee structures and the firm’s willingness to utilize these types of structures for them. Value based arrangements have altered the legal landscape. A firm’s response to an AFA inquiry illustrates how the firm is adapting to the market industry impact to the legal service delivery model. Here is an example of a first level review of different types of responses to one AFA question. While numerical grading is usually involved, these responses will be categorized as good, bad and ugly.
AFA general inquiry analysis
Consider this question: For each practice group area you are proposing on, describe your past experience in utilizing various alternative fee arrangement structures.
The good: “Handled a gender discrimination action for one consumer products company for the fixed fee of $100,000...determining the amount by examining three similar discrimination lawsuits...provided five assumptions.”
This firm answered the question meaningfully by naming the type of AFA — fixed fee — and tying it to an individual practice area with some specificity of terms.
The bad: “Our firm has handled several fixed fee matters in litigation and corporate. A fixed fee is a fee structure where our firm handles all of the representation for a specified amount.”
AFAs have been utilized for over 25 years. Providing definitions of the various types of AFA structures is not helpful. After my review of the AFA responses from a recent corporate law department client, at least one-third of the responses fell into this non-responsive category. Another caveat for law firm responders is that rate discounts, blended rates and volume discounts are not AFAs.
The ugly: “Our work with [this client or others] is too complex to consider fixed fees or any type of non-traditional hourly arrangement.”
Could the work be considered less complex for a different firm? The fact that the firm is receiving an RFP, that new types of non-firm legal service providers exist, and that this is a competition all belie this type of response. Even with the most complex matters or cases, there is always an opportunity where certain tasks could be handled via fixed fees or shifted to more efficient resources.
Responses like this should raise a red flag as it is disturbing on another level. If the firm believes that the type of legal work is too complex to quantify into an appropriate AFA structure, how is the firm able to create a meaningful, granular budget on the matter?
Corporate law departments are under immense pressure to justify their legal budgets. Outside counsel budgets comprise generally 55 to 80 percent of the total legal budget of a corporate law department. Resources need to be devoted to evaluating the current firms and possible new additions in order to answer the pivotal questions of:
- Do we have the right firms handling the right legal work at the right pricing structure?
- Will these firms contribute to a more effective legal service delivery model?