Sourcing legal services gaining momentum

May 1st, 2008 at 06:53am David Bush - Iasta

Recently, I wrote a blog about the up-swell of support for procurement to get involved with the legal spend. From the same publication that I found that article, there was a follow up, which added even more detail to the topic.

Fortunately, the author ended on a very high note with great analysis. In the first half, however, I had my doubts that it was going the right direction. There was repeated commentary which seemed to paint procurement as unsophisticated, not capable of understanding legal services.

As example:

“How do you measure the troubles the company didn’t experience?” says Hackett. “How do you prove the value of, ‘We didn’t have an SEC investigation this year’?”

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Procurement or purchasing employees who are not part of the legal department may find it difficult to appreciate or even understand those values. They may also find it hard to differentiate between a straightforward legal task that could be performed by most corporate lawyers and one that requires involvement by a trusted legal adviser who may be familiar with the company’s legal needs or who has particular expertise.

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Merely looking at costs is not always the best way to choose outside counsel, Hansen says. Procurement employees who don’t have a legal background are often unable to differentiate between attorneys and may ultimately outsource to a new attorney without the skills and trust required for the job, simply on the basis of lower costs.

“A procurement group is not capable of differentiating between top players,” Hansen says. “They don’t understand that their skill sets need to be separated, and are also incapable of differentiating between top and bottom players.”

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Of course, we all know this is not the case and procurement has many very sophisticated methods of analyzing bids to make valid comparisons. If a company is large enough to have sourcing possibilities in legal services, they have surely heard of RFPs or eRFx technology (and probably use them). These concepts are easily accounted for by asking the questions and assigning the proper measurements. Weighing price and non-price factors are methods that have been used by sourcing teams for a long time.

Ultimately, the article takes a turn for to a very constructive discussion, with excellent tips for managing sourcing and legal teams as one.

“It’s clear that corporations are increasingly looking at ways to save money, and law departments are cost centers and need to be managed as cost centers,” Friedmann explains. “A forward-thinking general counsel should look to the purchasing department for help.”

While procurement or purchasing department involvement with hiring outside counsel can lead to tension, savvy general counsel shouldn’t ignore the purchasing department’s interest and expertise. Rather, in-house counsel should work together to balance the company’s cost-cutting needs with their preferences for outside counsel.

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General counsel should look for ways to quantify legal services that will steer the procurement department toward measuring results, not just costs.

For instance, some law departments look at comparative savings in the industry in general or at outside counsel savings effected by better practices or better technology, Hackett says.

Some large companies even have created a position within the law department whose sole responsibility is to oversee outside counsel costs, retention rates and savings maximization. Such a position — particularly when filled by a member of the law department — can cut costs while ensuring that the company’s legal needs are adequately met and outsourced to the right people.

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Unique and creative ways of procuring outside counsel services such as online reverse auctions and e-billing, both of which are slowly being introduced, might also help cut costs, yet can yield the same level of service to which law departments are accustomed.

As the article states, many procurement groups see a lot of juicy, low hanging fruit, when they peer into the marble floored legal offices. Handling these services correctly, is critical, but very possible and the results should be highly beneficial.

Entry Filed under: General, Supply Management Best Practices