Procurement continues to gain traction in companies with considerable legal spend. Many large companies today have a department dedicated to sourcing legal services. Legal procurement professionals trained in data analysis and sourcing technology help with spend management. They carefully reduce the number of firms the company instructs and ensure billing guidelines are established and followed.
In the last decade, legal fees have been under intense scrutiny. Publicity about billing practices, big ticket spending, increased transparency, and profit pressure have changed the situation and shifted responsibilities from the legal department to finance and procurement. Top management – typically the CFO – brings in procurement to help legal better manage its spend rather than legal departments pro-actively asking procurement for help.
Legal Procurement is still a new discipline. Only three years ago, in 2014, the international legal procurement trade organization Buying Legal Council (www.buyinglegal.com) was formed to support and educate Legal Procurement professionals and other buyers of legal services. It provides education and networking to its members and counts many Fortune 500 companies, multinationals, and government agencies among its members.
Early this year, the Buying Legal Council together with Bloomberg Law published the 2017 Legal Procurement Survey to give insights into current legal procurement practices and trends:
Insight 1 | Legal & Procurement are warming up to each other
Legal and procurement appear to slowly getting more comfortable with each other. More than half of respondents in the 2017 Legal Procurement Survey believe they have a good relationship with legal.
Until recently, in-house lawyers did not want to have anything to do with procurement. Legal procurement’s involvement was seen as unwanted interference despite possibly leaving significant savings on the table. In his foreword in the Legal Procurement Handbook, former DuPont General Counsel Tom Sager said:
"Procurement’ may still be a four-letter word in the legal industry, but the legal landscape is clearly changing. And with it the recognition that it is incumbent upon the general counsel and her outside counsel to apply greater sourcing discipline to our profession to create competitive advantage for her respective corporate clients.”
In the 2017 survey 17 percent of respondents assessed legal and procurement as “partners” and 38 percent said to have a “collegial” relationship with the legal department. This makes for a combined 55 percent with a positive relationship.
On the other hand, 37 percent experience a “reluctant” relationship with legal, and 8 percent described their situation as “what relationship?” These 45 percent still have to build the necessary trust for a good working relationship. This will take time and effort.
Insight 2 | Legal Procurement helps reduce spend by an average of 11%
Legal Procurement definitely does its job: On average, legal procurement departments were able to save their employers 11 percent of the overall legal spend. The “most successful” legal procurement departments were able to achieve an astonishing average savings of 23 percent. What’s more, the highest overall savings according to the 2017 Legal Procurement Survey was 35 percent of spend. Even legal procurement professionals who did not see themselves as particularly successful were able
to achieve 9 percent of savings.
For 2017, legal procurement professionals expect average savings of about 12 percent, only one percent more than what they just reached. Interestingly, those seeing themselves as “most successful” in legal procurement expect savings of 17 percent this year, below what they just reached in the previous year.
“It is unrealistic to expect high savings every year, year after year,” explained a seasoned legal procurement professional.
Once legal procurement professionals have established their framework, introduced different cost-savings methods and better approaches for sourcing legal services and managing legal services supplier relationships, it is hard to continue to deliver significant savings on top of recent savings. “Eventually you run out of quick wins or things to do that are able to improve your savings in high percentages,” the expert said. The next step then for legal procurement is to turn its attention to other aspects, such as matter management, outcomes, tracking, standards of best practices, and fixed prices for simple matters. So watch this space – further savings will be achieved, even after all the low hanging fruit has been picked.
Insight 3 | Top priority: Reduce number of Law Firm Providers
For 2017, legal procurement’s top priority is to significantly reduce the number of law firms, to work with an increasingly (smaller) select number of strategic suppliers. Given that companies work with a still rather large number of law firms—an average of 362 traditional law firms, this is perhaps little surprising. This number ranged from as few as 15 firms to as many as 1,500 firms. The median number of firms in the 2017 Legal Procurement Survey was 200 firms (which is still a very large number of legal services providers!)
These high numbers explain why legal procurement departments still consolidate firms and continue to cut firms by forming panels of preferred providers. A very different picture emerges when we looked at the numbers of eDiscovery vendors, alternatives to traditional law firms and legal process outsourcing companies (LPOs). Hiring of these types of alternative providers appears to be much more disciplined and more tightly managed. This may be perhaps due to legal procurement’s involvement in managing this type of services and/or because these providers are “newer phenomena” for companies.
On average, companies worked with four eDiscovery companies. This number ranged from zero to twenty eDiscovery companies. Companies worked with four “alternatives to traditional law firms” on average, ranging from zero to fifty firms, with a (low) median of two alternative firms. Finally, companies typically work with one LPO. The highest number of LPOs a company worked with was three.
What do these insights mean for law firms and other providers of legal services?
The competition remains intense. Procurement wants to see improvements to the delivery of legal services, gains in efficiency, appropriate, thoughtful staffing, careful budgeting, and the right use of technology. Most clients today issue requests for proposals (RFPs) and establish panels of preferred legal providers. It is essential to be on the panel to be able to win work.
Firms may need to hire additional resources trained in legal project management, knowledge management, process improvement. Or they may need help with pricing of legal services and bidding for work. John de Forte’s new book “Winning Proposals” will be an essential guide for firms to win business.
Legal procurement’s involvement is both a threat and an opportunity for the legal community. Winners have already started to respond and deliver better results at lower costs. Winner move fast, prepare, and pounce now to avoid watching your competitors win panel positions with clients you took for granted for too long.
For further insights: download the 2017 Buying Legal Council Legal Procurement Survey
Dr. Silvia Hodges Silverstein researches, teaches, and speaks on purchasing decisions and metrics in the legal industry.
She is the executive director of the Buying Legal Council, the international trade organization for legal procurement and she is also adjunct professor at Columbia Law School and Fordham Law School.
Dr. Hodges Silverstein co-authored the Harvard Business School case studies GlaxoSmithKline: Sourcing Complex Professional Services on the company’s legal procurement initiative and Riverview Law: Applying Business Sense to the Legal Market on the new model law firm.
She authored many articles on law firm management including The Georgetown Journal of Legal Ethics’ “I didn’t go to law school to become a salesperson,” the South Caroline Law Review’s “What we know and need to know about Legal procurement”. She is also the author/editor of several books, including the Legal Procurement Handbook and Buying Legal: Procurement Insights and Practice.