Let the Competitive Bidding for Outside Counsel Begin

Silvia Hodges in Law.com, July 26, 2012

Media Source

In 2008, GlaxoSmithKline’s then-head of litigation Bob Harchut was appointed “SPOC of the GELRT.” No, GSK wasn’t sending its associate general counsel into outer space, but he was exploring a new frontier for legal departments: competitive bidding.

Four years later, Harchut is still the “single point of contact” in the company’s “global external legal relations team.” And GSK is still leading the way for companies that seek to integrate their legal and procurement departments to obtain outside legal services.

When legal departments use competitive bidding, also called a “reverse auction,” they solicit proposals for outside legal services through a digital auction, often in conjunction with or modeled after the procedures of the company’s procurement department. During the process, both the legal department and the participating firms have a clear picture of the “market”—i.e., what other firms are offering for their services. This takes the place of traditional requests for proposals (RFPs), which, in the past, have also been accompanied by a kind of “courting” process between the company and the firm.
 
GSK has seen overwhelming success with the new procedure in place, with the company reducing its legal spend by tens of millions of dollars, and 68 percent of its legal budget going toward value-based fee arrangements.

And competitive bidding is catching on in a growing number of legal departments. A recent report, "Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments," by ALM Legal Intelligence, in conjunction with Lexis Nexis, confirms that other companies and the law firms they work with are jumping on the bandwagon. (ALM Legal Intelligence, like Corporate Counsel, is owned by ALM.) Of those companies responding to the survey, 20 percent of their legal departments indicated they had instituted a “reverse auction,” or competitive bidding, on high-volume and repetitive legal work; 36 percent of firms surveyed said they had been asked to participate in such a bidding process.

“It’s a trend that’s here to stay,” said Silvia Hodges, a Fordham Law School professor and legal marketing consultant. Hodges has developed an expertise in procurement and, along with business processes consultants at the Ark Group, recently helped to organize a conference in New York City, titled Power of the Purse: The Role of Corporate Procurement in the Buying of Legal Services. “I strongly advise law firms to understand how it works, and legal departments to be open to how procurement can help them,” she said. Hodges has a list of more than 50 legal departments that have gotten on board with the trend, including Bayer, Johnson & Johnson and Home Depot. Hodges has also noticed the trend among regional banks and financial services providers, as well as several of GSK’s fellow pharmaceutical companies.

These companies aren’t just turning to competitive bidding for routine legal services, either, Hodges and other experts agree. Courtney Sapire, president and chief marketing officer of RFx Legal, co-founded her consulting firm because she believes that procurement can be applied to legal services in a meaningful way. “Our goal is to align costs with services delivered,” Sapire said. RFx Legal works with legal departments to help implement competitive bidding.

Right now, the process generally involves identifying appropriate matters for outside counsel to bid on, arranging an “auction day” when the bidding takes place, and overseeing Q&A sessions and deal structuring around the auctions. RFx Legal has helped its clients to save up to 50 percent on their legal spend, and generally can find outside counsel for clients in as few as 10 days. The company is working to develop its own software designed specifically for legal procurement.

The loudest criticism of competitive bidding—the lack of a certain level of “human factor”—often comes from law firms, Sapire said. She attended the Ark Group conference, where at one point an attorney stood up and asked, “How can you live with yourself?” But firms can benefit from competitive bidding, too. Once they’re on the panel of firms a business turns to in an auction, they’re always offered an opportunity to submit a proposal for future work, said Sapire. They also receive feedback for why they were or were not chosen for the work.

At GSK, legal professionals have been pleased with how accommodating the competitive bidding model has been to all parties involved. In fact, the process is much more civilized than traditional legal services procurement, says Harchut. “It’s not a beauty pageant anymore, with big old-fashioned RFPs,” he said. Instead, it’s an internal team—made up of SPOCs from each legal, procurement, IT, and finance department—working to hone its legal spend on the firms it knows and trusts, through a balance of qualitative and quantitative measures.

“I think everyone can do this,” Harchut says. “Don’t be afraid to try something new.” Even if it means having someone call you a GELRT.