The RFP process has become more sophisticated and complex, but law firms still have to play ball to get on the preferred panel list.
Law firms are seeing companies take an increasingly sophisticated approach in the way they procure and engage legal services. And many of the larger corporations are using requests for proposals to create panels of law firms to consolidate the number of firms with which they are working.
The use of RFPs can be traced back to the 2008 economic crunch when the corporations closely re-examined their expenditures, deciding that they could do things differently when it came to their legal spend. Procurement departments have since become involved in the increasingly detailed process.
“Both law firms and clients are undergoing an evolutionary journey,” says Larry Chung, director of practice management and innovation group with Osler Hoskin & Harcourt LLP. Five years ago, he says, companies would ask what alternate-fee arrangement the firm had available; now, they’ll ask for specific alternatives, such as a cap fees.
Osler has responded to this growing trend with its own investment in knowledge management lawyers and pricing and project managers. “The purpose of this investment is to put forward to our clients a solution where it’s reflective of their business, the industry they operate in, insight into their legal issues and legal problems and a pricing model they find appropriate,” says Blake Inkster, Osler’s director of pursuits and market recognition.
Companies now host pre-RFP workshops or put out requests for information prior to issuing an RFP and ask law firms to describe their capabilities and areas of expertise, what value-added services they’ll make available and of what their legal project management and alternate-fee arrangements consist. The information they get back may serve as a minimum threshold of what they expect from their panel.
Shell Oil Corporation has been saving more than $20 million globally every year since adopting and continually tweaking its program using RFPs to create panels of lawyers with whom they want to work, says Vincent J. Cordo, Jr., its global sourcing officer. Shell used an auction process last spring to determine which firms to include on its panel, with the intent of developing better relationships with the chosen ones.
Its approach includes using performance measurement tools from which internal reports are generated about the firms that are used. “Without this type of assessment, it’s possible to overspend or over-resource certain matters and also to look at different firms to ensure you’re getting the best value for your spend,” says Cordo. “We have condensed lists so we can guarantee more volume to firms because they’re investing in us” by providing training, credits, discounts and other value-added initiatives.
Shell has also started a quarterly business review reporting process to examine the performance of the law firms that general counsel use when meeting with the firms. The idea is to constantly streamline and improve the process. Cordo says Shell is getting to the point where it will generate reports about what worked and what didn’t, which is then shared with the firms for a more transparent process.
Pricing consultant Nancey Watson says there’s a bit of urgency for firms to earn a spot on the preferred panel list for companies because if they don’t, they’ll be out of the running altogether until the company decides it’s time to create new rosters of law firms. And it’s not always large firms they’re looking for; boutique and regional firms are often sought out for the work.
She is also seeing monitoring of legal services taking a firm hold in the legal services procurement process. Companies are tracking invoices, the budgeting process, the success rate of lawyers and firms and how much money they’re saving the company. “The companies now have such sophisticated software that they can drill down to individual lawyers, let alone law firms. So everything they do is being tracked. And all companies have KPIs — key performance indicators.”
Some, she says, have up to 100 KPIs they track with firms and, like Shell, they may share many of these with the firms. Watson says it’s become important for the firms to track their own performance to find areas they can improve upon.
Gowling WLG LLP’s pricing strategy manager Andreea Axani says in addition to putting together teams of both lawyers and supports such as pricing and project managers to respond to RFPs, her firm has developed internal methodologies and processes. And, like the companies, Gowlings collects information to measure its own performance to improve its approach.
“We’ve noticed not only an increase in the number of formal requests but we’ve noticed a huge increase in complexity,” says Axani. They are no longer necessarily restricted to one issue but can be a multi-channel, multi-phased approach in different service areas in different locations.
Two years ago, the firm launched Gowlings Practical, its approach to legal project management using a collaborative software program that it says provides clients with cost certainty, efficiency and value. That helps to create good answers to the RFP and has led the firm to create templates for different types of matters based on best practices, says Rick Kathuria, director of PMO and legal logistics for Gowlings. “We can build up our plans and our pricing based on those templates and based on the historical data,” he says.
There is, in fact, a changing demand as companies become more strategic in their requests for legal services. They’re looking for new and efficient approaches to the work, says UK-based James Wilson, director of global proposals, Baker & McKenzie Global Services LLC.
“What clients are looking for is very different now from what it was even two, three years ago, and it’s not just about an extra discount on the hourly rate. It’s about more innovation and it’s about more efficiency, it’s about changing the way we work,” says Wilson.
There are also more partnerships between the client and the firm once the firm makes it on to the panel. Because the company has fewer firms to deal with, there is an increased desire for more interaction between the two, says Wilson. With this greater emphasis on partnerships, firms may become involved in providing insights and ideas about how to help manage the in-house team, help “look ’round corners to spot risk” and ideas to help increase efficiencies in managing the business.
While the panels or preferred counsel lists are an important starting point in managing legal costs and compliance, the consolidation of firms helps company officials get a little more up close and personal with the firms with which they are working.
“Firms have to be all things to all clients these days,” says Richard Brzakala, director of external legal services for CIBC’s legal department. “It used to be that procurement managed legal services, but now it’s about managing relationships.”
Clients want to feel like they’ve had a great experience with the limited number of law firms that they’ve decided to work with and that they’ve got value from the relationship, says Brzakala. And technology has provided the client with tools to measure what they’re getting out of that relationship, how the firms are managing with the budget, the details of the project, the successes and the timelines.
Infrastructure Ontario spends about $10 million annually on outside legal spending, over and above its team of 42 lawyers. It draws from its list of pre-qualified firms for three areas: major projects such as highways, hospitals and bridges, real estate services and lending and financing. Its vendor of record listing includes firms that have responded to its request for qualification in several legal service subject areas. A firm can be on one or several of the subject lists.
If the estimated cost is less than $25,000, Infrastructure Ontario can simply choose a firm from the list. A second-stage RFP is issued for work exceeding $25,000, drawing three to five firms from the pre-qualified list. Marni Dicker, executive vice president of Infrastructure Ontario, says pricing and technical expertise used to be weighed equally, but there’s acknowledgement that the firms on the lists are pre-qualified, so there has been more emphasis placed recently on price considerations. “Value for money is crucially important to us, so we don’t necessarily take the most qualified firm because the most qualified firm might also be exponentially the most expensive,” says Dicker.
Infrastructure Ontario will ask for a guaranteed maximum price, so there is a ceiling. But, she adds, the process is constantly being refined. The provincial government department is about to test another approach: choosing a firm without firming up the price until after the firm is chosen for its ability to do the work. “These law firms are interested in being repeat service providers and I’ve been convinced that I’m not going to get gauged but I’m going to actually get better pricing.”
New trends in RFPs
Proposal strategy and pricing consultant Nancey Watson has identified these current trends as large companies seek out legal services:
• The use of procurement specialists to draft more sophisticated RFPs and performance measurement;
• Companies using RFPs to create panels or preferred counsel rosters to consolidate the number of law firms they use;
• Alterative (or appropriate) fee arrangements and value billing and billing transparency.
Note: This story originally appeared in the Canadian Lawyer March issue.