7/15/11

Law Firms as General Contractors? Or the Other GC

Ron Friedmann and I ran a point-counter point post a while back on Bet-the-Farm versus Law Factory models for law firms. The dialogue was intended to generate some thoughts and ideas on the future shape of law firms.
In this post I take a tangent on that topic and explore whether firms should or could be General Contractors, versus legal-only niche players from the prior dialog. I think the ramifications of this concept extend deep into the future role and shape of firms, but in a different way.
General Contractor (GC)
Law firms have been tempted in the past to play a GC role but haven’t done well in executing on this. I’m using your traditional definition of GC here, whereby the GC plays the primary role in a project, using sub-contractors for various aspects of an engagement. The obvious GC example is construction, where the GC contracts to plumbers, electricians, carpenters, etc for each piece of the work. Two important points to note here: The construction GC is THE relationship point in the engagement, 2) The GC stands to make the highest return on its time/investment.
Ten years ago firms were acting as GCs (and some still do this) sending e-discovery work out to sub-contractors and passing that expense along to the client. This has not been going well since: 1) The firms didn’t manage the costs well, leading to clients taking these efforts in-house and 2) The firms didn’t make any margin on the work, meaning they were happy to let it go. Unfortunately, this also meant the coding and first review work would now start going to these third party providers.
What could the GC role look like?
An entrepreneurial firm could take a strong GC role, establishing itself as a cost-effective, low-burden provider. It would be cost-effective, since it would use its market position to secure the best rates from qualified sub-contractors. It would be low-burden, as it would remove the administrative and management burden from clients who are currently managing these sub-contractor relationships. These are the primary reasons you use a GC for any work. You want them ensuring the project is getting done right, on time and within the budget.
In a recent client meeting this concept came up. The client was asking why law firms are apparently unwilling to take a GC role. The client was not happy that it had to take on the GC role and especially not happy when they were able to easily realize significant cost savings from the sub-contractors. The list of potential sub-contractors discussed was surprisingly long. E-discovery providers were mentioned, but also included were copy services, court reporters, and even included contract lawyers (think on- and off-shore).
After the discussion and some time thinking about this idea, I came to the conclusion that the reason firms have not taken on this role is that they consider sub-contractor work to NOT be lawyer work. Being non-lawyer work puts the efforts beneath lawyers and not their concern. The vast majority of AFAs I have seen specifically exclude “expenses” as fees not worth including in the arrangement and not the law firms’ problem.
Recommendation
Law firms would be VERY smart to take on the GC role. In addition to bringing more value to clients, it will keep them in the primary relationship role with clients. I am already seeing legal spend decisions shifting to business units (versus in-house counsel) so ignoring this need and opportunity will come at some peril. Admittedly certain states’ ethics rules may present some challenges, however that is no reason to sit on the sideline and watch your business be pulled away by third-party contractors who take on primary relationship roles.

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1 comments:

ran daniels said...

SO why do Law firms not like subcontractors are they scared or do they simple not like little firms

 

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