Hi there,
When your CFO asks you to illustrate what you’re doing to effectively manage external legal spend, or your “enterprise savings group” approaches you for new ideas on how to control costs, how will you respond? 😥
External legal spend isn’t exactly an insignificant number — usually between 40-60% of the total cost of legal — so it gets a lot of attention in the business; regardless of whether you report directly to your CFO, GC, or otherwise.
So when we hear great examples of how our clients are proactively prepared to handle these conversations, of course we want to share them with the rest of our community.
Earlier this week, we did just that.
Ashley Woodill, Vice President and Associate GC, Wells Fargo, and John Crawshaw, Vice President, Legal Operations Portfolio Manager, PNC, joined us on a webinar where they shared their top strategies for controlling outside counsel spend — and importantly — how they demonstrate those savings to their GC and CFO.
To say that the conversation was lively is a bit of an understatement.
Let’s just say our team’s Slack feed may have exhausted a few emojis: 🔥👩🏻🚒🚒🧯🌶️.
It’s no surprise that cost avoidance utilizing both fixed fee AFAs and competitive RFPs was one of the key tactics and data points highlighted by both Ashley and John.
(The others included rate negotiations, invoice review, volume-tiered discounts, and favourable v. unfavourable forecast reporting.)
But there are still a lot of misconceptions around the use of RFPs and reverse auctions in legal.
We heard loud and clear from the webinar audience on some of them. 📢
"Isn’t competing matters just a race to the bottom?"
As Ashley and John shared, it’s about a lot more than just price. Often, it’s not the lowest-priced firm that is selected by their teams; the factors that are weighted and how they are weighted will vary depending on the type of the matter, the risk involved, and available resources.
PERSUIT’s own data, which shows that the lowest price is only chosen less than 50% of the time, reinforces this.
Ultimately, it’s about getting the right firm, with the right strategy, at the right time, for the right price.
And as one of our team pointed out, it’s hard to call it "the bottom" when many law firms' profit margins outpace many industries (40%+!!).
Similarly, competitive pricing at the matter level isn’t anything new — because (shocker) lawyers are good negotiators and have long been heavily negotiating their pricing on matters. 🤷🏻♂️
But as long as those negotiations continue to be done offline, there is no way to capture the data to create a holistic view of pricing over time and present a defensible case to finance.
"If firms drop their pricing, won’t that impact how top firms allocate their resources and ultimately increase our outcome risks?"
As one of our clients, Adrienne Fox (Director of Legal Services Procurement, Novartis), shared in the webinar chat:
“Any firm that reduces price very drastically was most likely overpricing to begin with or misaligned on work needed per the assumptions. This is also another reason for having outside counsel panels — for high-risk or high-spend matters, you need to rely on key firms and bid across 3 or 4 to streamline the process. For repeatable work, the data gathered helps to inform future bids, which becomes really valuable.”
From the firm perspective, fixed fees can actually give firms larger margins and more profits per revenue dollar generated by incentivizing them to be efficient.
For example, a well-managed or strategized firm will throw its best resources at a case early in and resolve the matter for 25% of the projected hours while still capturing the full fixed fee.
"What evidence do you have that matters sourced using competitive RFPs had a successful outcome?"
Here, the data speaks for itself.
Some PERSUIT clients have been running auctions at the matter level for more than 4 years in a row on our platform. If they were achieving bad or subpar outcomes, we wouldn’t see some of the world’s largest enterprise legal teams renewing their agreements with us year-over-year.
This also circles back to how in-house lawyers weight their selection factors.
Sometimes the associated risk is large and price becomes less of a factor.
But there are plenty of matters for which the associated risk doesn’t merit the price tag.
Looking at your portfolio of risk holistically, if you roll the dice enough times, it’s a matter of probability that your team will ultimately come out on top of the risk v. cost equation if you’re properly weighting your selection factors. 🎲
And perhaps just as important is to understand law firm behaviour.
Do you really think law firms choose to deliver poorer outcomes because they competitively priced their work? We have not seen that behaviour on PERSUIT. But if you come across it, you should fire that firm. ☠️
"Won’t using RFPs and fixed fees negatively impact our relationships with outside counsel?"
As Ashley and John both shared, they see their firms as trusted partners — an extension of their legal department — and they take special care to manage those relationships well.
Ultimately, using competitive RFPs and fixed fees enables them to be more transparent with their firms about what they’re doing and why.
Firms also stand to benefit from the pricing process by having more shots at the apple in competing for work. 🎯
Thinking back to my days as a managing partner, would I have welcomed the opportunity to compete for new matters that would have otherwise been handed over to another firm without question? Or to showcase our strategic capabilities in providing qualitative answers to an RFP?
You bet I would.
And I think the answer is the same for most firms out there today.
That’s just a small sample of the many great nuggets that John and Ashley shared during the webinar.
If you weren’t able to join the live event, you can find the replay here, or get on the waitlist for our follow-on guide here.
Cheers,
Jim
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