June 12, 2023
By Keanu Maui GeveroPage Reading Time: 4 minutes
“How do I know I’m getting a good price from my law firms?”
Traditionally, that type of data simply hasn’t been available to in-house teams or firms — a fact that causes widespread discrepancies in cost across the legal industry.
In this article, we’ll show you a process PERSUIT uses to find what we call the “true market price” for a legal matter.
It may seem counterintuitive, but finding a true market price makes the price less important when you select your firm for a matter. By doing so, you can empower your team to better manage risk by choosing the best firm — not just the one with the best rate.
What is a True Market Price?
A “true market price” is the average transaction price that buyers and sellers can commonly be expected to agree upon for a particular good or service. But without transparency and competition within a market — like in legal services — it’s difficult to discover what a true market price actually is.
In legal, that’s starting to change.
In-house teams are under pressure to demonstrate their value to the business more than ever before — and to justify and document their decisions around external spend.
For all these reasons, legal teams are increasingly adopting a new process for engaging outside counsel — one that introduces transparency and competition so a true market price can emerge.
A Four-Step Process to Find the True Market Price for Legal Services
At PERSUIT, we teach in-house teams a process they can use to determine a fair market price for legal services.
Here’s how it works:
Step 1: Segment the matter by milestones and deliverables
Most legal work falls into repeatable patterns. You may not know exactly how a matter will go, but you know the types of activities that often happen.
For example, in litigation, you know there will be depositions, even if you don’t know exactly how many you’ll need. Nearly any matter can be broken down into predictable phases and activities to arrive at the “deliverable” or outcome.
In our litigation example, those milestones and deliverables would include depositions, discovery, pre-trial, trial, appeals, etc. The same concept can be applied to advice or transactional matters as well.
The same holds true even for complex matters such as IP litigation. Certain phases and types of work, like claim construction and the Markman hearing, can be scoped and outlined. It will take some up-front investment, but the process will yield a better environment for competition and transparency with your firms.
Having a library of pre-built templates for many types of matters also helps make the scoping process significantly easier.
Step 2: Invite preferred firms to submit proposals
After you’ve scoped your matter by phase, invite three to four of your preferred firms to submit proposals detailing how they’ll approach the work.
Ask them to submit their price estimate, a summary of how they’ll approach the matter, and any other information you’ll consider when awarding the work (DEI, relevant experience, etc.)
If you’re doing this manually, you can send emails inviting the proposals. Or use a firm relationship platform to simplify the process.
When appropriate, some companies invite bidding firms to ask questions and further scope the matter, helping you ensure a true “apples to apples” comparison when you receive proposals.
Step 3: Use a competitive process
Sometimes, the proposals you receive will have similar price quotes.
In those cases, the competitive RFP process — on its own — has revealed a “true market price.” This gives you confidence that you’re not overpaying for the matter.
There are other cases where you’ll receive proposals with price estimates that are wildly different. In that case, you can’t know if the prices you’re looking at are a true “market price.” It may be that the firms simply don’t know what other firms are charging for similar types of services.
In this scenario, the process we recommend is a “reverse auction” — a competitive process where you set a time window, show the price quotes (or their rankings) you received from firms, then give those firms a chance to revise their price quote.
This is usually done as a live event with a time limit between 30 minutes to an hour.
Here’s an illustration of a real reverse auction taken from the PERSUIT platform.
At the start of the auction, there was a $1.275 million spread between the highest-priced quote and the lowest.
One hour and six minutes later, the price spread had narrowed dramatically, with all four firms having price quotes within $270,000.
In this case, the “true market price” is about $1 million — the price the firms are grouping around at the end of the auction.
Step 4: Choose the firm you think has the best chance of giving you the result you need
At the end of this competitive process, you and your team can evaluate the proposals and make a choice about who to work with for the matter.
It may be counterintuitive, but a competitive process actually makes price less of a factor when choosing a firm.
At the beginning of the auction illustrated above, there was little chance that an in-house team could justify paying an extra $1.275 million to engage with the highest-priced firm competing for the work — unless it was a “bet-the-company” type matter.
By the end of the auction, however, the bid spread had been reduced to only $270,000 between all four firms; even less between the top three.
With the emergence of a true market price for the matter, the decision becomes less about price and more about who is the best team to manage the relative risk and drive the right outcomes.
The Payoff: Make Price Matter Less When Selecting Outside Counsel
Our internal data — which includes over $8 billion in proposals and $1 billion in legal work awarded through the platform — show that time and again the competitive process detailed above takes large price differences out of the equation.
By driving firms closer to a consensus price, or true market value, cost becomes less of a deciding factor than in a traditional RFP process. This price convergence empowers in-house teams to move beyond price in deciding which firm is the best fit based on the things that really matter — experience, strategic insights, diversity and ESG metrics, and more.
You can read more about the benefits of competitive sourcing in our recent report, 5 Myths About Reverse Auctions in Legal. You can also hear about how competitive sourcing strengthens the relationship between in-house teams and their firms in our webinar featuring Gopal Burgher, partner at BurgherGrey, and Kimberly Williams, head of Legal Operations at SMBC.
Ready to uncover the true market price for your matters? Sign up for a demo today.
PERSUIT is used by the world’s leading in-house legal teams to engage outside counsel in a way that’s more fair, more objective, more diverse, more equitable, and more effective for everyone involved. Learn more about PERSUIT.