Canada: Sourcing External Counsel – Strategic Or Tactical

Last Updated: July 14 2015
Article by Richard Stock

Dr. Silvia Hodges Silverstein is the editor of the recently released Legal Procurement Handbook, a collection of 27 articles written about the business aspects of retaining external counsel. Contributors include procurement specialists, law departments, law firm pricing officers, business development specialists, academics and consultants. CLOs and GCs should invest two hours to read the handbook and understand the state of the art and the multi-party debate on sourcing legal services.

Dr. Hodges Silverstein is also Executive Director of Buying Legal Counsel (www.buyinglegal.com), a not-for-profit organization supporting procurement and operations professionals tasked with sourcing legal services and managing legal services supplier relationships. With more than 300 members, the Council is still in its infancy, but making great strides.

I had the opportunity to discuss the tradecraft of "buying" legal services over lunch with her a few months ago. DuPont's former General Counsel, Tom Sager wrote the forward to the handbook. "The balance that needs to be struck in the procurement of legal services and all that flows from that decision is of critical importance to the representation, reputation and risk profile of the company and how these services are priced and effectively managed." He goes on to say that "the in-house attorney... is uniquely positioned to blend the sourcing discipline into the procurement process to ensure that the company's interests are adequately protected and advanced."

Over nearly 20 years, I have had the opportunity to help more than 75 companies retain law firms in 100 countries. In only a handful of cases were procurement or strategic sourcing involved in the proposal process, fee negotiations, selection and subsequent relationships with external counsel. A data-driven and disciplined approach to retaining external counsel is now with us. Law departments are only now beginning to upgrade the classic relationship-based, hourly-based model with leading-edge practices to select law firms, manage costs and improve performance.

Regrettably and regardless of the size of the company, most General Counsel and their procurement departments are behind the curve when it comes to collaborating with each other on behalf of their employer. Progressive law departments have understood for some time that a strong foundation of business data applied to legal services, market intelligence regarding the legal industry, and structured processes to define requirements clearly improve the quality and cost-effectiveness of retaining counsel. Law firms have this figured out as well. New job titles such as Strategic Pricing Leader, Head of New Business, Global Director of Client Value, and Chief Practice Officer underscore the seriousness of firms and the high stakes in the business of law.

Legal Procurement

Geraint Evans, Head of New Business at London-based CMS Cameron McKenna, makes the distinction between strategic and tactical buyers of legal services. His handbook article describes procurement's "tactical buyers" as those who tend to focus on supplier terms and conditions, discounts, payment terms, and master service agreements—an approach which can be divisive and counter-productive with both law firms and law departments. On the other hand, "strategic buyers" focus on the business objectives of the company and on its law department. They understand the legal category and legal market intimately. They are informed about the latest developments on alternative business structures, legal process out-sourcing, and alternative fee arrangements.

In her handbook article, Dr. Hodges Silverstein reports the 2014 findings of her research on the state of legal procurement. While procurement is not making the final decision on which firms get retained, their role and their functions have evolved so that

  • procurement's role is that of buyer, influencer and gatekeeper – especially for mid-sized and larger companies
  • almost 20 % of legal procurement professionals have a legal background, while most of the others have business degrees
  • procurement is moving into higher-value legal services
  • procurement gathers market data and conducts benchmarking studies
  • procurement is more adept at fee negotiations and defining billing guidelines

US-based consultant Charles Green and Basel-based Bill Young highlight six areas of conflict as procurement moves from managing the buying process to being more strategic when retaining external counsel. Their handbook article "Procurement Needs A New Metric" considers price vs value assessments, commoditization of the final selection, reliance of the law department on implicit contracts with law firms after they are selected, pressure to be more involved in the early stages of scoping legal work and business objectives, superficial calculations of cost-savings, and the difficulty in managing legal spending for strategic and complex activity. Green and Young conclude by proposing a new performance indicator called "the spend control index" – something that is better aligned with corporate and business objectives.

Busy law departments should understand how capable or not their procurement departments are. Can they support the legal category beyond managing the process of a call for proposals and securing a discount on the hourly rate? How well do they know the current service providers? How up to date are they on alternative fee arrangements and alternative business models? Every General Counsel should be calling for a more robust legal services procurement capability within the year.

The Pricing Enigma

Danny Ertel is a partner with Boston-based Vantage Partners. His handbook article, "What's (Much) Better than a Discount?" argues that having  a disciplined counsel selection process in place makes requests for discounts more credible. Otherwise, the trusted advisor relationship can be eroded. Ultimately, discounted hourly fees are a losing proposition. Rather than hourly-based pricing, Ertel advocates portfolio pricing – something that depends on collaborative discussion with the law firm and clarity about the type and amount of work that is needed.

Law firms are careful to limit the amount of financial risk that they take on when they move away from hourly-based pricing. A good start is to have solid and detailed historical data on hand. Procurement should be able to provide this. Just as important, shared planning assumptions about scope of work, expertise and staffing patterns, and  cost-management will improve the value equation in the business relationship with preferred firms. The quest for efficiency and effectiveness will end successfully when expectations are explicit and shared. A discounted hourly rate is one step forward and two steps back. The best legal procurement professionals understand the trade-offs and  embrace strategic sourcing as their preferred approach.

Over the last three years, a few Canadian law firms and quite a few US law firms have been hiring pricing and legal project professionals. Steven Manton is the Strategic Pricing Leader with Debevoise & Plimpton llp in New York City. His handbook article (Procurement and Pricing : The Benefits of Partnering) describes how this new breed of law firm pricing specialist simplifies the negotiations and supports ongoing business relationships with significant corporate and institutional clients. Manton observes that too many law firms tend to keep their business professionals in the back office when negotiating service and fee agreements with their best clients. I can think of five meetings with law firms when pricing negotiations, especially those that included AFAs, were much more efficient and produced better results all around because the law firms' financial experts were at the table.

Most law departments are still poorly informed about the details of alternative fee arrangements and legal project management. They are not adept at fee negotiations, in part because they believe that such talk will sour professional relationships and partly because all they know is discounted hourly billing. Law firm pricing professionals and corporate procurement specialists should present advanced-level seminars to law departments and law firm partners on strategic sourcing of legal services.

Successful Sourcing

Jason Winmill is the Managing Partner of Boston-based Argopoint, a management consultancy focused on law departments.  His handbook analysis suggests that there is a significant diversity in the approaches, skills, focus, scope, impact and results in the field of buying legal services.  He outlines problems with the quality of RFPs, an overreliance on technology to support informed decision-making when sourcing legal services, insufficient support by rank and file members of the law department for disciplined sourcing, and a fragmented marketplace both nationally and internationally.  Overall, the list of challenges is daunting but his article is a good primer for legal sourcing professionals wanting to make a strategic rather than tactical contribution.

Dr. Hodges Silverstein's handbook and her organization reflect the rapidly changing typography in the relationship between law firms and their best clients. General Counsel should quickly adopt a more cost-effective and strategic approach when managing this aspect of their business.

Originally published in CCCA Magazine, Summer 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Catalyst Consulting
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Catalyst Consulting
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions