By Stacey Coote, Partner
We have all seen the trend of moving towards fewer and fewer firms with the Eversheds and Tyco and Pfizer Legal Alliance examples often offered up as best practice and it is clear looking at press articles that the majority of large organisations have been reducing the number of firms they work with for years now (if not as drastically as cited in these models).
However, in this post I want to explore whether it is in fact beneficial to work with fewer firms:
The Case For:
Many benefits have been realised by moving to fewer firms, inclusing, but not limited to::
- Discounts- Heavy discounts are often realised as a result of fewer firms being engaged (lots of instances of 30-40% discounts for being one of a few suppliers)
- The A Team– I have consistently seen clients benefit from having the firms ‘A’ Team on their account as a result of having large spend with them
- Root Cause Analysis Savings– I have seen instances where firms are providing valuable feedback to clients on root cause analysis of their costs which results in reducing total legal bills (e.g. firms exposing poor management teams in certain areas of the business leading to lots of litigation etc., firms detailing requests to attend calls they are not needed on, and firms identifying where unnecessary and duplicative paperwork is being sent to them from internal users etc.)
- Innovation / Technology Investment– I have seen firms invest heavily in technology solutions to deliver more efficient and innovative services for clients that they would not have made without a commitment from the client to work with them in the long term
- Learning Curve / Dedicated Teams of Lawyers– Rather than constantly reinventing the wheel on each matter firms employ dedicated teams which ensures the learning curve is minimised
- Closer Working Relationship– This should not be underestimated and I have seen instances where firms are able to work with the business on savings and revenue generation opportunities as they work so closely together. I saw one instance where a firm was able to generate millions in additional revenue for an organisation as a result of the close working relationship
- Knowledge Sharing– Firms often share knowledge with in-house legal teams and indeed train teams to ensure risks are minimised
- Relationship Investment– Firms will often invest in the relationship by providing things like Free secondments, Free Advice, Free Training, Free Hosting Services, Free meeting rooms space (which can be especially valuable in London market) etc.
- Innovative Fee Arrangements– Rather than charging by the hour you often find instances of fixed fees and success fee type arrangements where fewer firms are involved which brings pricing more closely aligned with the interests of both sides
- Project Management– I have seen firms invest in project management on large matters for their clients resulting in 5-10% savings on big matters, which they would not have provided without long term client commitments
The Case Against:
I have seen instances where organisations with hundreds of millions in spend have been consolidated to a handful of firms. This has not led to the benefits claimed and the results include:
- Not The ‘A’ Team– We saw instances where the client was receiving ‘C’ and ‘D’ teams on certain matters as the firm knew the client could not walk away. Other examples include firms deploying lower cost (and less experienced and qualified) staff (for fixed fee matters etc.) to maximise benefits to the firm
- Practice Area Issues– I have seen lots of instances where certain areas of the business complained of very poor service as although the relationship with the firm was large overall the practice area they needed support in had poor performing lawyers or they were not an important client for that practice area of the firm
- Country Specific Issues– This is a common issue where organisations adopt a ‘Global’ Panel approach and I have seen instances where certain countries had very poor expertise but the firm was used anyway as they were a ‘global partner’ leading again to sub-optimal outcomes for the internal function in country
- Pricing Competitiveness- Pricing was not as competitive as seen with other organisations as the firms knew the client could not move spend away from them so they pushed back hard on discounts and indeed increased rates in lots of instances
- Pricing Increases– Additionally in the longer term we saw firms continually increase costs as they knew the client could not move to another firm
- Over-Lawyering– I saw complaints of strategic partner firms bringing up to 12 lawyers to meetings with no benefits realised from doing so
- Relationship Challenge- Cosy relationships can lead to no challenge on bills / fees
- Complacency- Complacency can set in as firms never feel like they are going to be fired. Equally the buying organisation know they can’t really fire them due to so much institutional knowledge existing within the firm
- Conflict Issues- Clients are forced to use very expensive firms where conflicts exist as don’t have sufficient alternative relationships in place to use in such instances
- Missing Out On Best Market Pricing Offers-Better discounts from using non panel firms could be achieved as are so keen to work with a new organisation and offer ‘loss leader pricing’ to get the opportunity
- Staffing Leverage Issues– We saw instances where an exclusive firm deployed a partner exclusively to a matter and no other timekeepers. Some of the work on such examples was very low level and bizarrely even included instances of a partner billing for his time spent photocopying, which was clearly not in the clients best interests. Equally I have seen instances where no partner supervision was provided on matters where firms were historically providing high levels of partner supervision
Convergence can definitely bring benefits but it also brings additional risks which need to be managed effectively. Convergence will only work in our experience if you robustly performance manage the firms that you continue to have a relationship with. Without robust performance management you risk all of the benefits being diluted over time (or indeed immediately in the worst cases).
We are uniquely positioned to help organisations build and manage robust law performance management programmes which ensures convergence delivers the benefits it should bring.