Many law firms (and non-law service providers) are running into a new hurdle while doing business with Fortune 500 corporations. Some leading corporations are involving internal procurement groups (or sourcing groups) to select and set fees with outside counsel.
Many attorneys are experiencing this situation, but haven’t developed an effective strategy. Having a plan to respond to procurement’s involvement, and executing effectively against that plan is becoming a necessity. Law firms that don’t have an understanding of this trend, and an appropriate response, are likely to see their business impacted negatively. Conversely, firms that understand this development may have a competitive advantage over firms that are less prepared.
Law firms serving or pitching Fortune 500 companies can improve their effectiveness and probabilities of success in the following ways:
Educate Procurement, Where Possible
The corporate procurement professionals assigned to work with outside law firms are not all-knowing experts on all legal services (much less the specifics of your firm). Most are not attorneys, nor are they expected to function in a legal capacity by their corporations. This is not their role or expertise – their job is to know purchasing “best practices” and the purchasing process for their company. As such there is often a chance to help procurement become better informed and more fluent with key issues and the legal environment. When possible, outside counsel should offer their time to help procurement achieve greater understanding of their firm and value – this can also be a great opportunity to build a relationship with procurement.
Educate Yourself on Procurement’s Process and Guidelines
The objective of the procurement function, at its best, is to run a fair process; one that “levels the playing field” and increases transparency for the parties involved. Procurement groups are not perfect, and will vary in how successful they are in achieving their objective. The best practice in most situations is for outside counsel to learn procurement’s process and follow it carefully. In some instances, outside counsel will accidently or deliberately try to thwart the procurement process (e.g., performing “end runs” to senior management). In my experience, this proves detrimental, and can ultimately cause firms to be evaluated negatively and even disqualified. As part of learning procurement’s process, outside counsel should direct some of their inquiries to procurement specifically. Procurement objectives and needs can differ from those of in-house counsel. Therefore, I recommend asking procurement questions regarding their needs and priorities (e.g., cost-effectiveness) and adapting approaches based on that specific feedback.
Invest when Procurement is Involved (or Consider Passing)
If procurement is involved, the “sales cycle” is likely to be longer, more involved, and require more work on the part of the outside law firms. For example, a procurement process for legal might involve an initial RFI, a full RPF, structured interviews, and a multi-round negotiation process focused on rates and economics. Responding to these requests will require an investment of time and resources. Law firms should scope out the necessary investment upfront and make a “go/no-go” decision. Often the client relationship or work at stake is so attractive to outside firms that the investment is easily justified. However, sometimes the investment is not justified. Law firms should be comfortable politely and courteously “bowing out” of some selected procurement processes that they deem not worth the return on their investment.
Procurement’s involvement in the way legal departments are purchasing legal services seems to be increasing. Many believe this trend is here to stay (although only time will tell). Law firms engaged in processes that involve procurement face several serious challenges, including learning new processes and understanding the needs of this unique new corporate stakeholder. Furthermore, law firms must make calculated ROI decisions as to which opportunities to pursue, as the business development investment required will typically increase if procurement is involved. However, outside counsel firms also have a tremendous opportunity – those that invest and figure out how to work well with procurement can gain a competitive advantage in closely-contested situations and grow their business.
ABOUT THE AUTHOR:
Jason Winmill of Argopoint offers suggestions for outside counsel when firm selection processes and negotiations involve the procurement function. To learn how procurement and sourcing are working with legal departments at leading Fortune 500 companies such as IBM, Toyota, GSK and others here is the full article on legal sourcing and legal procurement.