Law360 (May 15, 2020, 5:51 PM EDT) --
The business of law is built on long-standing relationships. Company executives must feel comfortable that their lawyers understand the nuances of their business, its strategy, and their goals over the short, medium and long terms. Of course, one need not mention that trust and secrecy are integral, even foundational, to the relationship.
The intersection of the law with the realities of business is a complex calculus that gets easier to solve over time. There is intrinsic value to the enterprise in avoiding repetitive reeducation of counsel. Did you absorb any version of calculus in a semester, much less a day?
It's upon this backdrop, however, that some tools are being touted as rapidly creating value by reducing law firm fees. Two favorites are reverse auctions and matter-level requests for proposals. They were popular in the aftermath of the Great Recession; many may be tempted to resort to them in the wake of COVID-19's disruption of the economy.
Of these tools, matter-level RFPs seem to be the most popular, with some touting a mantra reminiscent of Torts 101 in that — but for issuing them on every matter — the enterprise will be ripped off. The premise is that all law firm partners will compete for the company's legal spend and that even panel counsel, which may have already agreed to lower rates, will chase their peers ever lower. The promise being made is that issuing matter-level RFPs today will save money in perpetuity, and that making them a cornerstone of a legal procurement strategy is necessary.
While these instruments can reduce costs by bluntly controlling the tangible dollar price set at the beginning of a matter, they do not provide a full 360-degree calculation of value, and will, over time, negate the intangible value that a trusted adviser brings to the table.
There are law firms that no longer participate in matter-level RFPs to join a panel if it only meant they had to bid again at the matter level. Why? Simply not worth their time.
Moreover, can in-house legal departments expect any favors from their law firms in this kind of transactional environment? Again, no; if there is no long-term relationship, don't even think of asking.
And what about the negative effects on in-house counsel? In-house lawyers have bemoaned the fact that they could not keep any outside counsel engaged for more than a few matters because of the matter-level RFP process. The matter-level RFP had not only ignored the complexities of what constitutes a valuable relationship with outside counsel, it thoroughly eroded it until it no longer existed.
Outside counsel's intimate knowledge of the company, its business, its short-term and long-term goals, and all of the stakeholders that could have some bearing on a matter — all gone. Counsel best suited to handle certain matters — no longer participating. By limiting its measurement of value to a race to the bottom line, the matter-level RFP process negatively impacts the very in-house counsel that the strategy was meant to benefit.
Is there no way to solve the dilemma of achieving significant multiyear savings while also preserving the valuable relationships between the enterprise and its law firms? Yes, but there are several elements to the approach.
At Avis Budget Group, we successfully consolidated from approximately 700 law firms globally to a panel of seven. The program returned over 30% savings on Avis' annual legal spend without resorting to matter-level bidding wars while fostering long-term relationships with the firms that understand its business best.
In this model, a singular, global RFP forms the process to select a company's panel of firms based on its preferred criteria: price, diversity, innovation, technology, project management, value-adds, tracked metrics, etc. Reducing outside legal spend is the primary motivating factor justifying the time, effort and costs to the enterprise to create a panel. The company achieves this by asking outside counsel to provide lower hourly rates in exchange for a greater percentage of overall work from the company along with the security of a multiyear-term engagement across allotted subject matters and geographies.
Once on the panel, outside counsel are no longer subject to the endless "Survivor"-type competitions with other firms for matters. The matter-level RFP is never needed because the negotiation over price is completed at a time when the company had much more leverage. Offering up one matter? Inconsequential. Leveraging a multiyear agreement for work across multiple geographies and subject matter? You get the point.
The company can use the panel RFP to filter for the other factors mentioned earlier while preserving existing and developing new relationships.
After the hard work of selecting the panel is accomplished, it is in everyone's interests to make sure the arrangements are successful. With the right methodology legal services can be tracked equitably and consistently across cases, no matter the outside counsel, so that there is comparability, reliability and ultimately predictability.
A strong legal operations team can ensure that the law firms are meeting the panel's program goals and key performance indicators. Legal operations teams have several tools and methods at their disposal to help them accomplish this, including (1) matter management platforms to solve for intake, setup, budgets and monitoring until resolution; (2) e-billing, invoice auditing and data collection; and (3) data analysis and actionability software.
While there is no silver bullet that measures how a relationship with outside counsel is performing, a layered approach that maintains the importance of the relationship between the law firm and the business is a starting point that is historically proven to be vital.
Finally, the overall results and performance delivered by a law firm to in-house counsel should not be forgotten.
Where a matter-level RFP factors only the supposed cost reductions as influenced by price, effectively ignoring all other factors, an audit of results allows both in-house and outside counsel to consider the entirety of the relationship. Using a standard structure to evaluate outside counsel — e.g. the ability to audit the work product of outside counsel and compare it to peer firms alongside costs — creates the most precise tool over the long term for the discovery, creation and leveraging of value.
Periodic face-to-face reviews only adds to the productivity of such exercises and the overall relationship. Outside counsel's expertise, combined with intimate knowledge of the company business, leads to better work product and better results. Outside counsel's knowledge of internal and external stakeholders means more efficient tactics, whether it be an email to the correct person in accounting to get some facts, or a successful argument as to which depositions requested by opposing counsel are a complete waste of time and money.
There is a complete calculus. It is hard work, but it is possible to create and implement the structure that can create a simple and mutually beneficial measure of value between friends: the enterprise client and their trusted counsel.
Update: This article has been updated to reflect Hatti's departure from Avis on Friday, May 15.
Vivek Hatti is former director of legal operations at Avis Budget Group.
Jaron Luttich is a legal consultant and co-founder of Element Standard.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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