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Feb. 2 — As in-house legal departments look to cut costs and reduce inefficiencies, a process through which law firms submit competitive bids for providing legal services is becoming more mainstream.
Request for Proposals (RFPs)—a process more commonly associated with the procurement of other services—hit a 15-year high in 2015 in the legal industry. According to a BTI Consulting Group survey that was discussed in a Jan. 27 blog post, more than half (56 percent) of corporate counsel respondents said they issued such a request last year.
Amar Sarwal, vice president and chief legal strategist for the Association of Corporate Counsel, told Bloomberg BNA Jan. 29 that he wasn't surprised that there was an uptick in the use of RFPs.
Sarwar said large companies are trying to use fewer law firms for their legal work, and sourcing the firms through the RFP process. RFPs are a useful means for a corporate in-house department to drive change with its law firm, he added.
One company that is using the RFP process for some of its legal work is Staples Inc. In a recent interview, Stephanie Shores Lambert, Staples vice president and associate general counsel, told Bloomberg BNA that she is trying to push the use of RFPs within her company.
“For commodity work that can be done by almost every law firm, why shouldn't in-house counsel take advantage of the opportunity to compare law firms and find one based on your criteria as opposed to the law firm's view of what you might need?” Lambert said.
Several law firms contacted by Bloomberg BNA didn't immediately respond to a request for comment.
Since the 2008 financial crisis, there is a growing awareness among corporate counsel to reduce spending and do more with less.
Kathy Heafey, president of Banyan RFP, a company that operates a cloud-based application to help clients streamline the RFP process, observed that in-house legal departments no longer are protected from corporate cost-cutting. “General counsels are feeling budget pressure and legal departments are expected to watch the bottom line,” she told Bloomberg BNA in a Feb. 1 e-mail.
“Project management is right at the core of what in-house lawyers do these days,” Sarwal said. Many in-house attorneys don't have a lot of experience managing budgets like other business divisions. However, they are starting to learn how to do it and RFPs are one of the “tools at hand” to cut outside legal spending, he said.
In addition to cutting costs, the increased use of RFPs may also be a response to a growing disconnect between law firms and their clients, some observers say.
“Clients are using more RFPs because client service from law firms is down substantially,” BTI Consulting President Michael Rynowecer told Bloomberg BNA in a Feb. 1 e-mail.
The consultant observed that in 2015, only one-third of in-house attorneys said they would recommend their primary law firm to corporate counsel peers, down from 41 percent a year ago. “This drop in client service is driving corporate counsel to seek out new law firms,” Rynowecer said. “Corporate counsel have learned client service saves them substantial time, money and gets them better outcomes. These benefits justify the time and effort of issuing RFPs when client service drops.”
Sarwal told Bloomberg BNA that he also wasn't surprised by data suggesting that corporate counsel are less likely to recommend their law firms.
There is a “crisis of confidence” in law firms, he said. “The in-house folks aren’t getting the value they need,” and outside law firms don't fully comprehend the “laser focus within companies on reducing costs.”
“Efficiency rules the day,” Sarwal continued. “In-house attorneys have become very frustrated because they don’t feel like they have a partner at the table that understands their bottom-line concerns.”
Sarwal added that there has been significant turnover in the general counsel ranks at the biggest companies, and this turnover may have undermined the long-term personal relationships between a firm and its client.
For her part, Heafey reminded law firms that while relationships are always important, in-house teams have a responsibility to run their departments like a business. “It’s a buyer’s market for legal services—clients do not need to be paying top-dollar for outside counsel,” she said. “It is reasonable to say to an incumbent firm, ‘We appreciate our relationship and know you would do a good job on this matter, but we need to make sure we are getting best pricing for our work.'”
While cost-cutting may be partly driving some of shift towards using the competitive bidding process, experts said that corporate legal departments are seeing other benefits.
“It's not just cost,” there is definitely a “value piece” as well, Sarwal said. RFPs can really help companies determine who are the better legal services providers for them. Law firms that have demonstrated that they have thought hard about a client's problem or issue really stand out, he said.
Rynowecer added that he has been told by corporate counsel that the “single biggest benefit” of issuing an RFP is that “one or two law firms will bring new and innovative ideas they haven't seen before.”
“These ideas usually belong to the winners of the RFPs,” Rynowecer said. “This benefit is significant and justifies the time and effort. It is also interesting to note a client will send an RFP to five or seven law firms, so the one or two with innovative ideas really stand out.”
If the RFP trend continues, Rynowecer warned that law firms face the prospect of losing out on work. “This trend invites competitors into a law firm’s client base,” he said.
The consultant suggested that law firms improve their client services, which would make them less inclined to move to the RFP process. “The chances of winning an RFP are between 12 and 15 percent, so the failure to improve client service costs real money,” Rynowecer said. “Clients would prefer to receive great client service and award work without the bidding process.”
In addition to losing clients, RFPs can also create other headaches for firms.
“There are definitely breakdowns in the RFP process,” Sarwal said. Because some of the RFP systems aren't well-designed, law firms don’t know what really will convince companies to choose them, he said.
However, Heafey countered that many law firm leaders—believing that price competition is here to stay—already have hired proposal managers to help them process RFPs.
“Generally, this is something the market has already accepted,” she said. “As a result, law firms should be prepared and have an efficient plan of attack for responding to RFPs.”
Heafey offered some words of advice for law firms bidding through an RFP.
“First and foremost, firms need a process to determine if they should bid on the work or not,” she said. “Does it fit with their strategic direction? Do they have a strong client relationship? Do they have a competitive advantage? Do they see this as an entry to additional work?”
“There is a natural tension with the use of RFPs, but a healthy one,” Heafey continued. “Clients and law firms alike are trying to make a profit and make responsible business decisions.”
It remains to be seen whether the use of RFPs will continue to grow among corporate in-house departments.
Although Sarwal hasn't seen any evidence suggesting that RFP usage is slowing down, he suggested that the pendulum could start swinging in the other direction. “We could get to a point where” law firms just throw their hands up and say, `We don't see the value'” because the length of time taken to respond to an RFP may be wasted if they lose the bid—wasted hours that could have been spent elsewhere, he said.
“I expect clients to issue fewer RFPs as more than half the market has gone out for bid,” Rynowecer said.
“The corporate counsel will give the new relationships time to unfold,” he continued. “In addition, client service is always better in the beginning of a relationship—the true test will come as these corporate counsel expect the newly hired law firms to exceed their increasing expectations over time.”
However, beyond the RFP process, Sarwal said that law firms are getting the message from the market that they need to adjust their behavior.
Sarwal noted that in-house departments are looking for any possible way to wring inefficiencies out of the process, to reduce spending and get better quality services. With or without RFPs, clients are not going to relent on this pressure.
“What we are seeing is a greater raw number” of corporate legal departments saying “we need to find alternative ways of doing business,” Sarwal said. In addition to RFPs, companies also are using other means, such as legal process outsourcing (LPO), to find legal services providers, he said.
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The BTI Blog is available at http://www.bticonsulting.com/themadclientist/2016/1/27/client-rfps-hit-15-year-high.
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