In-house legal departments are under constant pressure to take on more work, but usually have little flexibility to add more lawyers to the team. It is more important than ever for teams to get the best possible value from their external relationships. This is driving a trend towards in-house teams working with procurement professionals to improve how they purchase legal services.
General counsel and in-house legal teams face a busy time. The modern business environment involves constant change as organisations respond to competition in the market, new technologies and ever-evolving regulation. At the same time, companies are always looking for more efficiencies and the legal function is not immune. The recent 2017 Benchmarks and Leading Practices Report, compiled by the Association of Corporate Counsel, found that 60 per cent of Australian in-house lawyers reported a pressure to reduce legal costs. Most organisations (80 per cent) reported pressure to reduce external spending.
Against that background, more companies are taking a rigorous approach to making sure they are getting the best value from their external law firms and legal service providers. One key trend is for companies increasingly to turn to procurement professionals to help manage external law firm relationships.
As noted by this year’s FLIP (Future of Law and Innovation in the Profession) Report, published by the Law Society of New South Wales, this trend has mostly originated from the US and is reflected in management roles that focus more on legal operations and administration, rather than giving substantive legal advice. There are also already professional groups that represent members with an interest in legal procurement. The Corporate Legal Operations Consortium (CLOC) has an Australian regional group and in August, the Buying Legal Council held a Legal Procurement Forum in Sydney, bringing together professionals to network and discuss best practice when procuring and managing legal services.
What is legal procurement?
Procurement is the management discipline of obtaining the best value for an organisation when making and implementing purchase decisions. Over time, the procurement profession has evolved, expanding its scope to cover nearly all categories of goods or services that an organisation might purchase, which increasingly includes legal services. This marks a departure for many companies where, historically, relationships with legal service providers have been managed by the general counsel. Legal services were viewed as complex, high risk and too uncertain to budget for accurately. According to this view, in-house lawyers, who often came from a law firm background, would be more familiar with the way that law firms worked and would be best placed to manage the work done by law firms. That view is changing, as the legal services market shifts towards buyers having more influence.
At its most basic, legal procurement might involve a general counsel adopting strategies and techniques learnt from their procurement colleagues. Increasingly, it is a direct involvement or procurement professionals in the process. Responsibilities can include, for example, advising on tender processes, fee negotiations, monitoring compliance with agreed engagement terms and collecting and evaluating data on the delivery of services.
Working with procurement
For in-house counsel, there can sometimes be initial resistance to working with procurement professionals. Lawyers might be concerned about a loss of choice or influence. Many lawyers have trusted firms or individuals with whom they have developed long-standing relationships and that they fear will be damaged by what might be seen as a short-term cost cutting exercise. Lawyers might also be worried about the time it takes to bring a new firm up to speed.
It is important that procurement professionals who are engaged to work with a legal team have experience working with complex service relationships. By starting an early positive dialogue with a procurement team, the general counsel has an opportunity to gauge that level of experience. If the procurement team don’t have the right kind of experience, there may instead be an opportunity for a legal team to engage a specialist legal procurement consultant to review processes and help implement new strategies.
An experienced procurement team, or consultant, can often assist in-house legal teams with:
- Better measuring and demonstrating the value that the legal function is delivering to the organisation.
- Ensuring that external firms are providing the right level of value for the fees charged, based on what is available in the market.
- Unbundling legal services and matching them to the most appropriate provider, including better use of technology, standardisation or automation.
- Identifying opportunities to structure innovative costs arrangements or risk-sharing
- Ensuring compliance with the organisation’s service provider requirements (for example, assessing a law firm’s data security capabilities).
A new world for law firms too
This trend also has clear implications for law firms that are working with organisations who engage procurement teams. Law firms need to be clear about their value proposition and honest about the parts of a project that might be better handled by other providers in the market. Firms might find they need to become more flexible or innovative when proposing fee arrangements to clients. With closer scrutiny and monitoring by procurement teams, firms also have to be strict on their own costs management and manage projects closely to avoid going beyond the agreed scope.
Practical Law Australia’s new In-House Resource Centre launches in November 2017, providing access to resources that help in-house lawyers respond to the day-to-day challenges of their role, allowing them to deliver even more value to their organisation. To learn more about Practical Law Australia or to request a trial, visit the website.