As I write proposals, I am in a unique position to help in-house legal departments structure their RFPs so they get the answers they want by asking the right questions.
Obviously, I can’t respond to those RFPs myself, but my work gives me great first-hand insight into the thinking of in-house lawyers and the needs of corporate counsel and legal procurement professionals.
RFPs should be precise and if I may say, direct. Corporate counsel should not be afraid to outline specifically what they want in the area of pricing. For instance, if you want a blended rate for the proposed team, be specific, ask the firm to state the title of the team members, the range of years of experience you expect on the team, their hourly rate, and then the blended rate with the discount clearly shown.
When working with law firms, I often hear from smaller firms that they do not provide any alternative fee arrangements (AFAs) even if the client is asking for them. I strongly believe that this puts these smaller firms behind the 8-ball because their competitors will be more than willing to provide a variety of AFAs.
Just like any other department, in-house counsel needs budget predictability when they submit their internal budgets for approval; and AFAs are invaluable in helping the GC with the budget. Interestingly, what in-house lawyers do not explain well enough to their external law firms is that the in-house legal department needs predictability of its external legal spend more than it needs to reduce the cost of external counsel. This is an important discussion that all corporate counsel needs to have with their legal services providers.
I was speaking about pricing with Hushmand Cott, chief strategic pricing officer at Covington & Burling — and what he said made a lot of sense. Law firms need to have their client’s perspective, he said, and the client wants to feel good about the value of what they paid for and that the fee was worth it for a good result. On the other hand, the law firm wants to be appropriately compensated for the good work that they did, Cott explained. And the firm wants to feel that it was worth the effort it put in for “hitting it out of the park.”
Interestingly, what in-house lawyers do not explain well enough to their external law firms is that the in-house legal department needs predictability of its external legal spend more than it needs to reduce the cost of external counsel.
Clearly, for both sides of the table, it all comes back to the fact that value and fees need to be in alignment.
Sergey Mezhiritskiy, pricing manager at Allens, agreed. “To achieve a successful AFA, the company and its legal service provider can pull their experience together to develop the appropriate arrangement for a specific matter or a category of work,” Mezhiritskiy said. “By discussing budgetary goals and anticipated workloads, legal departments —with the help of its external legal service provider — can establish a method to clearly track external spend and flag where there is risk for unexpected fees due to unpredictable scope.” While portions of legal work can be wrapped up in an AFA, he added, there may be work done on an hourly basis due to its unpredictable nature. “For work where fees are hard to predict, a rolling estimate that is updated as scope becomes clear may be appropriate to provide some form of certainty and help manage expectations.”
Often prices are perceived as “set in stone” or fixed — and Covington’s Cott reinforced the idea that scoping was key to setting an appropriate fee. And as we all know there is often scope-creep in an engagement.
“The advantage of doing a thorough job of scoping the matter and setting assumptions helps manage expectations,” he said. “And with a detailed scoping document in place there is a reference point to go back to if the matter had a substantive change of scope.” Without such a document, the situation could devolve into a ‘he said/she said’ stand-off, Cott noted. “Proactive communications are critical when the scope changes so that there are no negative surprises when the client gets the invoice.”
Richard Brzakala, director of external legal services at a major Canadian financial services institution, has told me that firms should be prepared to negotiate. Law firms need to acknowledge that the market is hyper-competitive; and they should not make the assumption that because they are a panel firm, the work will continue to flow to them unchallenged. There is always someone out there building a better mouse trap, or in this case, prepared to propose a better solution, better offer, or just simply a more innovative approach.
So, how can in-house counsel and external law firms arrive at a win/win situation when it comes to pricing? The legal procurement professionals I work with stress that communication transparency — not just pricing transparency — between corporate counsel and law firms can often make for the best service. In my experience, I would still say that this is something that needs to be worked on by both parties for a strong relationship of trust to flourish.
Mezhiritskiy agreed, with one strong suggestion. “One way to ensure you are getting the most value is to establish key performance measures and check-in periods to reflect on the delivery of legal services,” he said, adding that a key aspect of a successful relationship involves consistent feedback and on-going improvement. “Law firms can utilize the expertise of their business teams — for example, project managers and pricing professionals — to work with in-house teams to improve the delivery of legal services while being mindful of budgetary goals.”