September 18, 2019
By David FalsteinReading Time: 5 minutes
You can have any color you want, as long as it’s black. Ford’s Model T was a classic example of a market-creating blue ocean strategy that allows companies to unlock new demand. For centuries, people were content with horse and buggy until Ford showed people what they were missing.
Currently, some in-house lawyers fear the idea of having the outside counsel engagement process wrapped up into the auspices of their enterprise’s competitive bidding policies. However, they desire all the benefits that competitive bidding provides. Namely, driving for more competitive rates, obtaining cost predictability, and gathering qualitative insights into how the firms plan to strategically approach the engagement. So, why the disconnect?
“I think that it is a good concept and could work well for simple, repeatable cases, but all my cases are really complex commercial litigation matters so I don’t think an RFP really makes sense for me,” If only I had a dollar for each time I heard that excuse….
Today, the role of legal operations has been more frequently tasked with finding opportunities to run RFPs and this task can be challenged by push-back from managing attorneys. While there are many use cases for RFPs that include establishing a panel of firms company-wide or by practice area to properly align the selection of firms with their greatest area of expertise, among other considerations, bidding to select firms for a specific case is less common. There are many common misconceptions amongst managing attorneys about competitive bidding aka RFPs aka Sourcing on a matter-by-matter basis. The most frequently cited misunderstanding is that RFPs and competitive sourcing only work for commoditized work and that the greater the risk or complexity within the case or project, the less workable the case is for an RFP. However, RFPs are a great means for selecting firms in complex litigation matters for 3 key reasons:
1. More Competition and Firms’ Desire to Work Big Cases
The first reason complex litigation matters are ideal candidates for RFPs is that they are big and sexy… No, seriously. The complex nature of the work necessarily means that there is likely to be a greater amount of work involved. With more revenue potential for the firms, there is a greater incentive for firms to provide added discounts in order to earn the selection. Also, firms want the assignment so they can tout high-profile case outcomes to other clients. Therefore, a competitive selection process is more likely to be fruitful in these cases than in simple projects because firms want the business more and are more willing to lower their fees to win the assignment. This can lead to multi-million-dollar savings for the client in a single RFP. Clients completely lose out on these savings by sticking to the status quo – simply selecting their panel firms at preexisting, “discounted” rates.
2. RFPs can account for ambiguity and define price in case of change
Projects don’t have to be simplistic in their scopes of work to be candidates for an RFP. RFPs can be set up in a way where you account for the ambiguity that comes with complex litigation matters. One of the reasons that hourly billing is so pervasive in the legal industry is because of the ever-changing nature of litigation matters, whose timelines are heavily dependent on external variables – such as the whims of the judge. For this reason, the industry has (despite all its proclamations to the contrary) resisted AFAs. It’s just easier to get the firm started and have them bill you at what you’re told is ‘competitive’ hourly rates (but do not really know for sure?). However, the rate is only half the equation. And negotiating an hourly rate can be like squeezing the center of a tube of toothpaste – as the rate decreases, the firm can easily make up the difference on the backend by billing more hours.
Selecting a firm immediately without requiring the firm to submit a fixed fee proposal amongst competing firms causes the client to lose all leverage. Once the firm is engaged and the longer they are engaged, the less leverage the client has to negotiate a lower rate or to implement an AFA later on. That’s because firms know that the learning curve to bring in a new firm would be costly to the client. For this reason, its critical to run an RFP at the start of a new matter or project so that you can obtain a fixed fee proposal that provides price predictability for the duration of the case. In contrast, hourly budgets are horribly inaccurate and provide zero price predictability. With a fixed fee proposal obtained in an RFP, clients can get the total price while defining the types of changes that would trigger a “material deviation” (for example – a 30% increase or decrease in the number of these 5 key activities). After defining these triggers, the parties can also agree on how much it will cost to add additional activities into the scope (i.e. $100,000 for each additional motion to dismiss) and how much the total will be reduced if they are removed from scope. In this way, you can use the RFP process to obtain overall price predictability whilst also ensuring that you have an easy mechanism for making adjustments.
3. RFPs allow clients to set expectations for staffing and strategy upfront
A third reason RFPs are great for selecting firms in complex litigation matters is that they help the client set expectations early on. Expectations can be defined in the RFP in several areas such as a client’s preferred staffing mix, definition of a successful outcome, and preferred vendors and billing guidelines. Further, clients can define the level of seniority that it prefers to handle various tasks (for example – no first- or second-year associates on expert depositions). This allows the firms to provide pricing based on common assumptions so that the client can truly compare apples-to-apples total fee proposals. Also, it ensures that the client has set the right expectations before the work begins, which allows them to avoid time-consuming and difficult conversations that might occur during hourly invoice review.
You can have any AFA you want, as long as it’s competitively bid
Although the terminology, “Request for Proposal,” comes from procurement, where the purchase of commodities used to be the department’s only charter, the process is something that greatly benefits corporate law departments. An RFP doesn’t have to be a 60-page, lengthy exercise that is designed to evaluate whether a company “qualifies.” It can be a short 5-10 question template with pricing obtained at the phase and/or activity level that is sent only to panel law firms that the client has already ‘pre-qualified’. This streamlined process can then be replicated on a matter-by-matter basis such that panel law firms get into a rhythm of bidding for each case and can provide their best price during periods when they have their greatest capacity – creating a win-win scenario for both the firm and the client. By dispelling the misconceptions about the proper use of RFPs, the legal industry can move away from the misery-induced billable hour and towards a fair, transparent selection process. Clients can let the market dictate the true price of the work. This would allow them to spend less time worrying over hourly rate hikes and invoice review while achieving the budget predictability that CFOs have been asking of their GCs for decades.
PERSUIT™ is a Software as a Service (“SaaS”) company specializing in legal services sourcing technology. Founded in early 2016 by Jim Delkousis (a former BigLaw partner), PERSUIT was designed to be easy enough for in-house attorneys and law firms to use with little to no training. The tool is self-service enabled and is an out-of-the box, cloud-based software application, providing corporate law department attorneys the ability to launch Requests for Proposals (RFPs), Requests for Information (RFIs), Hourly Rate Information Requests, Panel Counsel Inquiries, and Alternative Fee Arrangements (AFAs). Each request type can be set up to drive price competition amongst participating law firms such that true market price is achieved. PERSUIT is reinventing the way companies engage with outside counsel with a mission to Kill the Bill(able) hour in favor of outcome and value-based fixed and certain pricing models. Have questions? Reach out to David@persuit.com or visit our website at https://persuit.com.