Dr. Silvia Hodges Silverstein is executive director of the international trade organization Buying Legal Council, a lecturer in law at Columbia Law School, and an adjunct professor at Fordham Law School.

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In many large companies, legal procurement professionals now work alongside in-house counsel to buy corporate legal and ancillary legal services. They analyze, use data and develop evidence-based rationale for major reductions in legal spend. Choosing a law firm has to make business sense. The 2008 financial crisis accelerated the process for the adoption of legal procurement, but publicity about billing practices, big ticket spending by large corporations, and corporate profit pressures are at the root of this change. The same development happened in other professional services, including management consulting and tax and audit services.

Companies with significant legal spending were the first to involve procurement in the purchasing of legal services providers well before the crisis, in the early/mid-2000s. Highly regulated industries first embraced legal procurement, particularly the pharmaceutical industry and financial services, as well as energy companies and utilities.[1] Today, many large companies around the world from a wide range of industries employ legal procurement professionals. There is no reason to believe that large corporations will return to the traditional approach of in-house counsel as sole buyers of legal services.

Why Do Your Clients Involve Legal Procurement?

It is typically the organization’s top management, often the CFO, who mandates procurement’s involvement with the buying of legal services. The goal is to help in-house counsel better manage cost and reduce supplier spending, and to ensure that they buy legal services in compliance with company policies. Other drivers of bringing in procurement include the desire to achieve more objective comparisons of legal service providers through measuring and benchmarking outside counsel’s value and the desire to streamline operations, improve efficiencies, find better ways to structure both fee arrangements and budgeting, and increase predictability and transparency.

When souring legal services, procurement commonly takes a process-driven, business-to-business approach used in other “categories” or areas of spending. Legal procurement supports in-house counsel with decision-grade data and develops the purchasing strategy, process, and criteria, as well as in negotiation and contract development phases, engagement letter, retainer, or framework agreements. Typically, procurement issues requests for proposals (RFPs) and manages the proposal process. This can take the form of matter-specific RFPs or panel RFPs for a group of preferred providers.

Many legal procurement professionals today are also responsible for fee negotiations. Procurement’s expertise in negotiating favorable economics and contracts for their employers has the potential to put law firms under significant and often new pressure to deliver more for less in the future.

Procurement is often also responsible for monitoring firms’ billing behavior and adherence to billing guidelines. Legal procurement checks firms’ compliance to billing agreements, and — if necessary — intervenes. What’s more, procurement conducts post-purchase performance evaluations. The above-mentioned GlaxoSmithKline case study describes the pharmaceutical company’s approach of firm evaluations, asking both in-house counsel and outside counsel to evaluate outside counsel’s performance on a given matter using a set number of dimensions (such as overall management of a matter).[2]

Does Procurement Influence the Purchasing of Your Type of Legal Services?

Legal procurement professionals typically source and manage “ancillary” legal services including e-Discovery, court reporting, medical records, or registered agent services. They are often responsible for shortlisting the providers, evaluating the offers, and even selecting the providers.

Routine legal services such as document review and due diligence are also commonly sourced by legal procurement. However, it is more common that in-house counsel are involved in shortlisting different providers and making the final decision.

At more and more companies, legal procurement is even involved in sourcing complex, high-value, high-stakes legal services. It typically leads the procurement process, ensuring that robust criteria for evaluation and selection are established and applied in compliance with corporate policies. Today, procurement is also regularly involved in sourcing, managing, and influencing so-called “bread and butter” legal services (those between high-stakes work and more routine, repetitive work).

Procurement is involved in a broad range of legal services from litigation, transactional, and — to a somewhat lesser degree — advisory work, in a wide range of practice areas: from commercial law, M&A, real estate, and employment, to intellectual property law, and more.

While legal procurement professionals often decides on ancillary legal services providers, they rarely — if ever — make the final decision on which firm to choose, nor do they have the ability to veto in-house counsel’s decision. Although procurement may make suggestions about firms to invite to tender for work, it is generally the legal department’s prerogative to name the firms it deems capable and appropriate to do the work, and to establish which legal and subject matter expertise is needed. The general counsel and designated in-house legal team also make the final decision. This is unlikely to change in the future.

What is Important to Legal Procurement Professionals?

Legal procurement professionals look for lawyers and law firms who have experience with legal issues similar to the one at hand (for matter-specific RFPs) or for types of services the company typically faces (when looking for panel firms). The firms’ and their lawyers’ know-how and skills must be well matched. As a rule, procurement will want to know if the firm has done similar work or solved a similar issue for another client. More advanced versions of this are whether the lawyer or firm has argued in front of a particular judge or court. Procurement wants to be sure outside counsel will be able to deliver the desired outcome and be efficient.

Procurement naturally looks to match the right firm with the right expertise for the right amount of money: Value for money and service excellence is central to procurement when evaluating firms’ offerings.

Procurement also looks for firms offering value-added options. Continued legal education (CLE) seminars for in-house counsel and business-level training as well as hotline/helpline access for in-house counsel and line management to ask quick questions are favorites among procurement professionals. Other desired value-adds include in-person visits of the client’s office/plant/facility to get to know their business; participation on internal calls that provide insight into a specific business or practice area; Secondments of lawyers; provision or development of basic templates and forms; conducting pre-matter planning sessions; and share-points with real-time access to the company’s documents. (See the Buying Legal Council’s annual survey for further information.)

Procurement also looks at law firm’s approach to staffing  (What is the lawyer to paralegal ratio? What is the percentage of partner hours?) and how firms deliver the service. Project management and process improvement capabilities have become important to legal procurement professionals.

Procurement is certainly not shy about its intent to lower legal spending, and unless alternative fee arrangements are used, legal procurement professionals clearly expect discounts on law firm’s standard rates. It is untrue, however, that procurement professionals only look at the lowest price without consideration of a firm’s expertise and experience.

 What You Should Do Today

If your clients involve procurement, you may need to rethink how you deliver legal services, reengineer your processes, improve your project management capabilities, boost your pricing prowess, and perfect your cost management.

It is highly advised that you to develop relationships with your current and prospective clients’ legal procurement professionals if you haven’t done so already. Do not wait until they issue the next RFP. Get to know them, understand what is important to them and what drives their decisions. You are more likely to prepare a proposal offer that is aligned with their intentions and more likely to win the work. (See the Buying Legal Council’s latest book, “Winning Proposals,” for further information.)

Think also about which legal tasks and projects you could or should standardize, and automate and work with procurement to discuss the options. Show how you plan to bring real efficiencies to their matters. Show that you are a great partner for their company.