19 January 2017

Legal services: the final frontier for procurement

Insights

This article was published by PASA – Procurement and Supply Australasia. The link to the original article can be found here.

Lawcadia have produced a 5-week series on buying legal services in Australasia, written specifically for PASA. Each week, we are bringing you the next chapter. Here’s the first installment…

The past ten years has seen the procurement profession transition from a focus on buying goods, machinery and ingredients to strategic sourcing across every category in an organisation. Except for legal. Procurement have successfully assisted organisations with sourcing for their sales, marketing, IT, management consulting and accounting requirements, but until recently, the legal department has remained off limits.

In the USA and Europe, there has been a growth in what has been coined ‘legal procurement’ where procurement professionals influence the strategic buying and procurement processes of the legal department. This series of articles will divulge current research and insights into the rapid changes that are taking place in the buying of legal services and explore procurements influence and strategies for success.

Legal procurement: the new kid on the block

One of the pioneers of involving procurement in legal services was GlaxoSmithKline (GSK) in their USA division. According to Justin Ergler, Director, Alternative Fee Intelligence and Analytics at GSK, “Legal services used to be the final frontier for procurement officers because the conventional wisdom was that you needed to be a lawyer to understand what the legal department is sourcing.”1

At GSK at least, this is no longer the case.

At first there was internal resistance, but procurement persevered and started to analyse the purchasing decisions with a goal of better understanding why particular law firms were engaged and their pricing. It wasn’t long before legal procurement at GSK saved US$23 million through negotiations and improved service just in their ancillary litigation services. This was just the start of an exciting new collaboration between the procurement and in-house legal departments at GSK. Over time it has led to an innovative new approach to procuring external legal services, replacing relationship-based selection and law firms’ traditional hourly billing with data-driven decision making.2

In just a few years, legal procurement has come a long way. In 2011, in the USA and Europe it was only the large banks and pharmaceutical companies that were engaging in legal procurement.3

“Now, many companies involve procurement in buying legal services”, observes Ergler.1

Why is legal is the last frontier?

Legal is unlike any other category. It is complex, highly sophisticated and it involves real risk. It is for this reason it has been off limits for procurement.

Perhaps the most significant barrier to procurement practices in the legal category is the tradition of strong, established personal relationships between in-house counsel and their counterparts at law firms. In many cases, they went to law school together or worked alongside each other in law firms.

In comparison to suppliers in other categories, law firms have significantly more power because of the relationship-driven sourcing selection and decision making that is ubiquitous in the legal industry.

The Buying Legal Council, the international trade organisation for professionals tasked with sourcing legal services and managing legal services supplier relationships, highlights that in legal, engagements might be based on “who do I know, who did I go to school with”.4

The influence of procurement is starting to change the legal departments relationship with their law firms to a much more business-oriented one. While relationships with law firms are still important, this new approach to buying legal services has the selection and engagement of law firms based more upon skills and metrics as opposed to solely being based on relationships.

Money talks

Many organisations have cottoned on that there are significant savings to be made on legal spend and procurement can help.

“Procurement may still be a four-letter word in the legal industry, but the legal landscape is clearly changing,” says Tom Sager, former General Counsel at DuPont in the USA.5

According to one of the world’s leading experts in buying legal services, Dr. Silvia Hodges Silverstein, the opportunity to save on legal costs is compelling. “As an industry rule of thumb, involving procurement typically reduces outside counsel spend by 15-20%.”1

Another example of the financial impact of legal procurement is Aon’s legal department, based in their Chicago office, which during 2015 spent 30 percent less on legal matters when they incorporated legal procurement practices and processes.6

With the constant emphasis on “doing more with less”, companies and government organisations in Australasia will start to look to procurement best practice to assist in cost saving initiatives and process improvements across legal.

The role of legal procurement

Legal procurement expert Dr. Silvia Hodges Silverstein, also Executive Director of the Buying Legal Council, highlights that the focus of legal procurement is to make the buying of legal services more transparent and aims to help the legal department to make the best-informed decision.7

While a procurement professional has many roles and deliverables within an organisation, one of their main deliverables is achieving savings. When it comes to buying external legal services, procurement specialists focus on four key areas to achieve and measure this:

  • Pay less
  • Use less
  • Alternatively source
  • Elimate 8

It is important to point out that these four deliverables cannot compromise the quality of the legal advice, so procurement needs to carefully consider the strategies for achieving these.

Outlined below are some of the approaches commonly used by legal procurement:

Pay less:

  • Demand more discounts
  • Undertake competitive RFPs
  • Hold law firms accountable for the fixed fees they quote (much easier said than done, however this is achievable with the right procurement processes)

Use less:

  • Re-direct work back in-house
  • Use risk assessments to make strategic decisions about what legal work is necessary
  • Process efficiency improvement
  • Automation of routine tasks
  • Legal project management.

Alternatively source:

  • Use legal process out-sourcing for routine aspects of legal matters
  • Hire contract lawyers for specific matters

Eliminate:

  • Running strategies to eliminate an existing matter (eg successfully getting a litigation matter dismissed)
  • Assist in-house legal teams to identify existing practices across the organisation that can be improved or changed so as to reduce the future risk of legal services being needed
  • Training, compliance, risk evaluation and process changes can eliminate the need for external legal services.

Just the tip of the ice-berg

This article has formed a very brief overview of the exciting development that is legal procurement. The following series of articles shall explore the growing influence of legal procurement and share proven strategies and approaches to working in the legal category.

 

 

Works cited

1 Hodges Silverstein, S. (2015). How to win GSK’s business. In Silverstein, S.H. (Ed), Legal Procurement Handbook (p. 119-125). USA: Buying Legal Council.

2 Gardner, H.K., & Hodges Silverstein, S. “GlaxoSmithKline: Sourcing Complex Professional Services.” Harvard Business School Case 414-003, September 2013. (Revised February 2016.)

3 Hodges Silverstein, S. (2015). Research report: The state of legal procurement. In Silverstein, S.H. (Ed), Legal Procurement Handbook (p. 126-132). USA: Buying Legal Council.

4 Buying Legal Council. (2016). 2016 Legal Procurement Survey.

5 Sager, T. (2015). Foreword. In Hodges Silverstein, S. (Ed), Legal Procurement Handbook (p. 12-13). USA: Buying Legal Council.

6 Bushey, C. (March 2016). How lawyers are like office supplies. Crain’s Chicago Business. Retrieved 23 November 2016.

7 Hodges Silverstein, S. (January 2012). Power of the Purse – How Corporate Procurement is Influencing Law Firm. Law Practice Today. Retrieved 23 November 2016.

8 Hodges Silverstein, S. (June 2016). What’s next?: Buying legal [Interview]. Retrieved 23 November 2016.

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