A Counterpoint on Procurement
Much has been written and discussed about the rise of Procurement’s role in the selection of legal service providers. The focus of this dialog has been on how Procurement can help a legal department in making more informed purchasing decision to drive down costs and how Procurement is here to stay as part of this process.
Offered here is another point of view on this subject. As a seasoned pricing director for a large firm, I have had extensive involvement with Procurement and purchasing departments. Having watched the evolution of this effort, I hope to bring some insights and points of discussion that bring value to the dialog.
In the Beginning …
Early experiences with Procurement were not favorable. In one instance, I reviewed a large spreadsheet showing the number of hours purchased by a company by time keeper type (partner associate, etc.), by practice type (labor, securities, etc.) and by jurisdiction. This example was no small deal either. Some categories had hundreds of hours, obviously representing a significant legal spend. The basic RFP request was that law firms should review the spreadsheet and then submit their bid for next year’s work. Firms were supposed to include a spreadsheet with their hour and rate bid numbers input in to each cell of the spreadsheet.
These RFP efforts have evolved since then. Now the most typical scenario is one where a brief / general scope is provided. An example would be for an acquisition of a certain value along with the statement that due diligence is included and up to four rounds of negotiation. Some of these requests will include a deadline, or closing date in this example. Then a fee cap with discounted rates might be suggested as the fee type. Although not all of the Procurement driven RFPs are exactly like this, I would suggest this is a reasonable, representative example.
On closer inspection, the scope is only moderately useful since it does not include the more meaningful information about the intention and goals of the client. Is this a strategic acquisition? Is the acquiring entity one that should be trusted or not? Are their known tax concerns? Answers to question like these will give the bidding firm the type of information that drives a quality response. In addition, as much as a client will say they want their firms to be healthy and profitable, fee caps with discounts are not the best recipe for that. In these situations, the client generally limits the list of submitting firms to those they deem ‘competent’ so the bid processes focuses primarily on price.
These examples represent the traditional Procurement methodology. Procurement’s primary role within a company is driving costs down while holding quality at an acceptable level. For many purchases this means unitizing the product or service; then securing bids from vendors on a per unit basis to push vendors to compete on price. The problem raised in the example above is that the best known unit for legal services is hours, so the result is forcing firms to compete on hourly rates to the exclusion of other factors.
Procurement’s role with Legal continues to evolve; however, for the most part I am seeing similar problems arise across the board when Procurement takes over the process for bidding on legal work. Of course there are some sterling exceptions. But at this point, these are truly exceptions.
This is not to say Procurement will not eventually figure out the best fit in working with a legal department to secure legal services. For legal departments working with Procurement, I hope this is the case.
Part 2 in this series provides an alternative approach to involving Procurement.