The Association for Corporate Counsel (“ACC”) released the winners of the 2018 Value Challenge. Below I break down how one of the winning teams used the RFP process to drive cost reductions and improve efficiency.
Step 1: Audit Your Current Spend and Process
7 -Eleven had only 2 in-house corporate counsel who worked on real estate matters so most of the legal services in this growing area were being performed by external counsel. They analyzed the companies prior legal spend to confirm that this was an area that would be low hanging fruit to target for cost reduction and process improvements.
It was reported that they used matter management software from Serengeti Tracker (now called Thomson Reuters Legal Tracker) to analyze past legal spend. While many Fortune 100 and other large companies may already have a matter management software program in place, many companies may not have the luxury of having that historical data available. If that’s the case, you should consider issuing a request for information (“RFI”) to the law firms that you are currently using. This often happens before a request for proposal (“RFP”) is issued. The RFI allows you to ask law firms to provide information on legal services performed, the pricing structures used and other relevant data that allows you to get a better understanding of your legal spend and current work allocation process.
Step 2: Develop a Blueprint for Success
Once Corporate Counsel has a full picture of the current process, they should develop a blue print for what they would like to create as far as the “ideal” system for buying and managing legal spend for their company.
Questions to ask yourself include as you envision creating your legal spend management strategy:
• What types (practice/industry) of legal services do you need performed by external counsel?
• How many law firms do you want to use?
• What types of law firms do you want to work with (size, geography, style, type of expertise, client service, etc.)?
• What types of work can be done by alternative legal service providers (“ALSPs”)
• Can you allocate your legal services needed by group (importance/risk level) such as complex/high risk, core, or commodity?
• What types of firms do you want handling each type of work to best reach your business goals?
• What billing structures is best to use for each type of work?
• What type of business structure and process do you want to have with your law firms? (project management, billing, training, feedback, client service)
• How do you want to utilize the latest technology developments in the legal industry?
• How do you want to allocate new matters?
• How can you create a shared risk/shared reward model with your law firms?
• How do you want to measure law firm performance and provide feedback to law firms?
• What metrics do you want to use to report performance to your company’s leadership?
Step 3: Issue an RFP and Select the Firm(s) That Best Fit Your Business Goals
7-Eleven issued an RFP to five law firms and ultimately selected Seyfarth Shaw to serve as exclusive external counsel for their real estate portfolio. The competitive advantage that Seyfarth offered was a package of services that included “a value-based sourcing system and a hybrid “insourced/outsourced model.” Seyfarth also used its technology, SeyfarthLink, to create a website dedicated to streamlining real estate communication between the legal department and its real estate professionals. They proactively pitched the value of the services they could provide.
By issuing an RFP, 7 -Eleven was able to compare the competitive advantages of each of the 5 law firms and determine which firm would best fit the blueprint they had created for an ideal company/law firm partnership. It sounds like they felt like Seyfarth had the right level of legal expertise and was able to pitch a comprehensive strategy on how to best divide the legal services between internal and external legal resources and had ideas and a plan to use technology and innovation to be more efficient.
Step 4: Jointly Develop a Legal Strategy with Your External Counsel
It was reported that 7 -Eleven and Seyfarth looked at each piece of work being done and figured out the most efficient way to handle it (internal vs external counsel) but also with-in the group of work being sent to external counsel they identified commodity type work that had a lower risk level that could be done by Seyfarth out of one of its low cost center offices using staff members and lower priced lawyers.
Seyfarth partner Eric Greenberg noted to Law.com:
“What we found was that there was a certain body of work that 7-Eleven needed to do on a large-scale basis that applied to a lot deals that didn’t necessarily need to be done at one office or another so what we did is put together a bunch of paralegals, staff attorneys and case assistants in our Atlanta office, which is a lower cost center,” Greenberg said. “So [it’s] still sophisticated, great quality work, but at a lower cost for 7-Eleven and it’s also a one-stop-shop. So, for all of their needs for this particular type of work, they have one place that they can go to and have a dedicated team they can refer to and use on a daily basis. It’s just created a much more streamlined process.”
What was great to see is that the law firm and company sat down and worked together as a team to strategize the most efficient and effective way to perform the needed legal services. That rarely happens in today’s legal market and is a benefit of the selecting one firm to handle the entire portfolio of work. The plan included input from both sides with a common goal of creating a system that would get the best results for 7 -Eleven.
Once the responsibilities were divided up by in-house or external counsel, they turned to process improvement.
Seyfarth partner Eric Greenberg noted to Law.com:
“We sat in a room with the legal department and members of the real estate group and mapped out the processes for negotiating a lease or a purchase contract. We created a detailed, 15-page process map that enabled us to see where we could improve on efficiency, find the right people to do the right job, cut down on unnecessary tasks. We came up with a process where we could negotiate deals much more quickly and efficiently, resulting in lower legal costs at the end of the day.”
Click here for images of some of the process documents they included in the submission.
Ideally, you want the final strategy to be a model that has a shared risk and reward system in place so that you are both incentivized to reach the same results. The “win-win” result here would be an increase of revenue by Seyfarth (since they would now be doing a greater volume of work for 7 -Eleven) and ideally 7 -Eleven would reduce total external counsel spend while gaining better results and improving efficiency.
Step 5: Create a Mutually Beneficial Pricing Structure
7 -Eleven wanted to move away from the billable hour and into a more predictable and uniform fee structure that focused on removing inefficiencies.
Seyfarth partner Eric Greenberg noted to law.com that:
“A lot of firms will just give standard discounts; they’ll cut their fees by 10 percent or 25 percent or whatever number. What we wanted to do was improve the efficiencies, the technology that 7-Eleven uses and come up with a systematic approach to do better deals that would naturally reduce, because of the efficiencies, the legal fees.”
In 7 -Eleven’s case they decided that a flat/fixed fee model was the best pricing method for the work performed as 7 -Eleven’s Corporate Counsel Kristin Cook noted:
“We get consistency in processes for negotiation and lease provisions and pay one fee from letter of intent to new store opening.”
Depending on the type of work being done, Corporate Counsel may need to be flexible in the billing models they use. Not all work can be done on a fixed fee, but there are a variety of billing structures that can be considered with the law firm to see which fits best. In most cases, you can come up with some type of hybrid billing method that uses fixed a fixed fee for “predictable” portions of the matter and the billable hour for the portions that may not lend itself to a fixed fee structure. Another option is to use risk collars on the fixed fee approach to provide more comfort to both sides should they be weary of a straight fixed fee price point.
Step 6: Agree to Outside Counsel Guidelines
The RFP process is a great opportunity to create a customized set of outside counsel guidelines that clearly states the expected process and policies that the law firm(s) and corporate counsel agree to. One of the key subjects covered in the guidelines is that the law firm typically agrees to provide a certain level of “value-add” services. Value-add means “free” in legal speak and is one of the benefits companies can get when they reduce the total number of law firms being used and give more volume to one law firm.
In this instance it was reported that:
“Seyfarth provides annual, in-person training sessions for the real estate field teams on a regional basis, at least six per year. Covering such topics as leasing, acquisitions and technology, the sessions have helped to maintain consistency across the country, resulting in better-negotiated deals and fewer disputes.”
In addition to value-adds, other key topics that should be covered in the guidelines include any comments on the expected processes law firms should follow for staffing, billing, data security, conflicts, media and other potential concerns to the company.
Step 7: Measure Performance
The work is far from over once the RFP is complete, but you now have a plan to follow that both the company and law firm are aware of the goals and the strategy to best reach them. There will likely be obstacles that arise that you will need to confer with external counsel on how to best address. That’s why it’s important to track performance and meet periodically with the law firm(s) to measure performance and share feedback.
In the 7 -Eleven example, it was reported that
“In only eight months, 7-Eleven had reduced total outside counsel spend by 19 percent in real estate legal spend. Outside counsel fees for new store development were decreased by 13 percent year over year.
In addition, new store deal fall-through rates declined from 25 percent to near 1 percent. Once matters related to existing stores in the U.S. were in-sourced, a new real estate transactional attorney and a new real estate dispute attorney were hired, and four contract specialists were transferred from another department to work as paralegals.
As a result, outside counsel spend for the real estate transactional part of the work decreased by 68 percent year over year. Further, 80 percent of all real estate disputes are now resolved in-house.”
As a winner of the ACC Value Challenge, the judges provided the following comments:
“GETTING SIX SIGMA TO WORK IN A LEGAL SETTING; THIS PROJECT IS AN EXAMPLE OF THE POSITIVES THAT RESULT WHEN LEGAL TRULY PARTNERS WITH BUSINESS.”
“7-ELEVEN REALIZED TREMENDOUS RESULTS FROM A TOP-NOTCH PROCESS IMPROVEMENT PROJECT, AND RECAPTURED LAWYER TIME BY DOING THINGS IN A SMARTER WAY. THEY ARE NOW ABLE TO NEGOTIATE HIGHER-QUALITY DEALS AT THE OUTSET THROUGH FIELD TEAM EDUCATION, TRULY DRIVING BUSINESS RESULTS.”
Matt Prinn is a Principle with RFP Advisory Group, a consulting company that partners with Corporate Counsel who are looking to use the RFP process to better manage legal spend. If you are interested in learning more about our services, please visit www.RFPag.com.