Shuffling walnuts?

I recently published a blog about legal procurement (validatum.wordpress.com/about/) entitled “Legal Procurement – Ready, Fire, Point” (aka RFPs), which was critical of the current state of play. It caused quite a furore, although I was reassured by the fact that over 90% of the comments were along the lines of “hear, hear”. It resulted in, among other things, a number of editorial requests for a follow-up article, including one from as far afield as the editor of the Journal.

Let me say at the outset that there are invariably exceptions to everything. There are certainly some corporate consumers of legal services and their law firm panel members who are putting some exceptionally interesting, innovative, constructive and successful arrangements in place that will be both mutually beneficial and enduring. You know who you are. You are, however, the exception.

The title of this article intentionally alludes to what Wikipedia describes as “the shell game” (also known as thimblerig, three shells and a pea, or the old army game), which is portrayed as a gambling game but in reality is a confidence trick of the type sometimes referred to as a “short-con” because it is quick and easy to pull off.

Ostensibly, legal procurement and all its dubious manifestations, such as “beauty parades”, were designed to introduce greater contestability among law firms, with the primary objectives of honesty in relation to professional fees and discouraging complacency on the part of the chosen firm or panel members.

Laudable though those objectives are, a huge dose of cynicism has crept into the process. The process has also been hijacked by people who have little, if anything, to offer and whose involvement is actually counter-productive.

The list of failings and deficiencies is a long one. Incomplete as it is, and in no particular order:

• Many RFPs are, to be blunt, nothing more than “butt-covering” exercises, usually driven by an internal edict to reduce legal spend by, say, 20% over last year. It requires considerable managerial skill to negotiate and implement that sort of outcome through improved efficiencies and greater mutual understanding between law firm and client. It is much easier to throw the legal mastiffs into a pit, starve and beat them and then take home as a pet the last three or four still standing.
• Some law firms insult their commercial clients’ legitimate attempts to work through the RFP process. I have seen responses from global firms that were little more than glossy cut-and-pastes from the firms’ websites. One could be forgiven for thinking that it is a standard document in which the name of the prospective client is simply changed as required.
• Legal departments often resent having to put their current panel to the sword, because they are personally quite happy with the relationship, and therefore cynically go through the motions, inviting half a dozen appropriate wild cards solely to bring legitimacy to the process. Some would argue that this at least forces the incumbents to sharpen their pencil. Anecdotal evidence suggests otherwise. However, the “patsy” law firms commit substantial time and cost when in reality they never stood a chance.
• GCs and legal departments can be hypocritical. On the one hand, they demand innovation in the relationship such as AFAs (alternative fee arrangements); but in the end both sides may default back to an hourly rate arrangement because that is the only metric they understand and agree on.
• The conclusion of an RFP process can often feel like a pyrrhic victory for the law firm. The firm feels like it’s been “nailed to the wall”, with no incentive to add extra value or go beyond the particular brief or job specification, develop client-specific resourcing or otherwise invest heavily in the relationship.
• Commercial clients like budgetary certainty and cost predictability. The solution is for law firms to substantially increase the proportion of the services they provide to the client on the basis of fixed pricing. Law firms protest that legal work is too unpredictable, but that does not withstand close scrutiny. There are a small number of innovative law firms around the world delivering most if not all of their services, including significant commercial litigation, profitably and effectively on fixed pricing and AFAs.
• The process is often delegated to “procurement”, sometimes within the commercial enterprise, sometimes outsourced. In my experience, in either event this frequently does more harm than good. Those responsible know they can probably get a decent short-term result and justify their existence (and their fee if external), by throwing the mastiffs in the pit and letting them fight it out.

Historically, the perception has been that the whole process has to be conducted as a zero-sum game: “I win, you lose”, but there has to be a better way. As a result, there is a growing appetite for a more constructive and sophisticated alternative.

Most law firms want to continue their relationship with their corporate clients, but there are always aspects of that relationship that can be improved from the firm’s perspective. Equally, the client will have a list of objectives. In each side’s objectives, some can be addressed very easily; others will be challenging. The point is that if there is already significant goodwill and mutual trust at the heart of the relationship, surely it makes sense to invest in addressing those aspects of the relationship that need some attention instead of creating a process that will inevitably undermine that goodwill. A couple going through counselling are not usually advised to start dating others to generate competition for their affections! Why should it be a recipe for success in a trusted adviser relationship?

What is missing from the dynamic is an intermediary who can assist the firm and the client to achieve the outcomes they both want: a mediator/facilitator if you will. The law firm wants work continuity, some predictability of volumes, and for the work to be profitable. Clients want responsiveness and proactivity from the law firm, commercial solutions and not just legal opinions, value-add strategies, and (in the present climate anyway) cost savings.

And as for firms seeking to attract potential new commercial clients? My advice is to forget about reactive response to most RFPs unless you are absolutely certain that you are a serious contender. Instead, identify good clients for whom you would like to act, then shortlist them using two criteria: are they in an industry that you know inside out; and do you know/believe/suspect that they are not being well looked after by their present providers?

Develop a stunningly differentiated offering and present it. You just never know.

In a later article, we will have a closer look at what a good RFP might look like.