Purchasing Power

Law Society Gazette - Thursday 28th July 2005

Why cash-conscious companies are turning to procurment teams

Cost-conscious companies are using procurement departments to seek value-for-money legal advice. Could this threaten long-standing relationships with firms? Lucy Trevelyan reports

A quiet, but nonetheless radical, revolution is unfolding in the way companies are procuring outside legal advice. With company management increasingly demanding better value from external legal advisers, merely flattering general counsel is no longer enough to guarantee private practice lawyers permanent panel places.

Company boards are turning to procurement departments to help purchase legal services. Indeed, a recent survey of 30 senior managers at leading companies in the UK, US and mainland Europe showed that 80% of respondents were planning to review their legal providers within the next year – and of these, some 70% expect procurement departments to lead the process rather than lawyers (see [2005] Gazette, 7 July, 1).

This approach is forcing law firms to forgo the effort traditionally expended on sustaining cosy relationships with in-house lawyers, and concentrate instead on developing the internal systems and policies needed to help them succeed in the new approach to tenders that procurement departments demand.

Solicitor Anthony Armitage, director of legal tendering company First Law, says that while procurement departments may appear useful, they will not necessarily be a long-term fixture. He says: ‘There is probably an increased perception that the purchase of legal services is not conducted as rigorously or as uniformly as for other services. Procurement departments are specialists in outsourcing so, at least superficially, it makes sense to involve them.

‘But I think this is more likely to be a passing trend, because it has arisen from a lack of information, and is based on an assumption that legal services procurement is no different from other types of procurement.

‘From my experience, there is very little adaptation of the questions asked of suppliers to take account of the specific characteristics of the legal services market. Without relevant information – such as a firm’s policy on working to fixed and capped fees, for example – a comparison of hourly rates between competing firms is virtually worthless.’

He says using procurement departments instead of general counsel can lead to a loss of control by the legal department and a poorer understanding of the complexity of the solicitor-client relationship, as well as creating unnecessary bureaucracy and inadequate contractual documentation to govern service standards for ongoing work. ‘Lawyers should be evaluated in three principal areas – experience and expertise, value for money and service standards. The criteria used in the assessment process should be designed to address as objectively as possible these three elements, using a pre-determined numerical scoring system. To my knowledge, lay procurement departments tend to ask questions which either invite yes or no answers or rather subjective narrative in response, neither of which lend themselves well to sophisticated appraisal.’