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How the RFP is Being Used by Legal Departments to Drive Efficiency

How the RFP is Being Used by Legal Departments to Drive Efficiency

In an era of increasing regulatory scrutiny, compliance concerns rank as one of the top priorities for in-house counsel these days. However, according to the 2010 ACC/Serengeti Managing Outside Counsel Survey Report, controlling outside counsel expenses is the top concern for the second consecutive year.

Competitive bidding, or Request for Proposal (RFP), though not new in corporate America, is new for the legal industry and one way for legal departments to streamline their cost structure and improve efficiencies.

Initially, RFPs were used in corporate legal departments to reduce the number of outside counsel that represented their company. This “convergence” methodology became popular in the 1990s as a way to trim the fat and improve efficiencies. Many legal departments operate inefficiently, with multiple outside firms handling similar legal matters. To combat this, convergence is an efficient method used by approximately 30 percent of legal departments, according to the ACC/Serengeti Managing Outside Counsel Survey Report, to streamline efficiencies, to cut costs and to retain the best firms.

Rob Thomas, Vice President of Strategic Development for Serengeti Law, wrote in a web posting that RFPs are being used more every year as a tool to effectively manage and retain outside counsel. In addition, legal departments are increasingly proactive in managing outside counsel relationships. According to Thomas, not too long ago just 20 percent of in-house counsel actively managed their outside counsel relationships. Today, 75 percent of law departments are asking their outside counsel for budgets, as an example of increased vigilance.

Recently, Exelon® Corporation initiated an RFP process to establish a preferred provider relationship with 35 outside counsel firms from 44 firms that were asked to participate, according to an InsideCounsel report. The process helped Exelon consolidate their legal work, and enabled them to retain the best attorneys at discounted rates.

And though paring down the number of outside firms is a successful strategy to streamline operations, it is not the only way the RFP is being used. Corporate counsel is also putting out bids for projects that are more routine and repetitive, such as litigation matters. In an excerpt from a Corporate Legal Times article by Michael T. Burr, Daniel J. DiLucchio, Jr. of Altman Weil, Inc. says, “Repetitive or commodity work really lends itself to RFPs because it is totally price sensitive. A lot of firms can do it, and they are bidding on price.” For specialized legal matters such as anti-trust or securities enforcement, however, the RFP process is less than desirable, as highly specialized matters require the best talent sometimes regardless of price.

According to most, the RFP process can  prove to be daunting from both the corporate counsel and law firm side. Sending out an overly detailed RFP usually results in more information than is needed and is rarely processed. When sending out a bid for individual projects, it is best to provide specifics on the project that will highlight the law firm’s expertise for the type of matter and the jurisdiction relevant to the project.

Law firms are being schooled in the most efficient ways to respond to an RFP, as explained by the Legal Marketing Association (LMA) in Strategies–The Journal of Legal Marketing. Often firms that fail to secure business during the RFP process lack focus and do not differentiate themselves. Being overly inclusive without a value proposition and not understanding corporate counsel’s needs are the downfall of many proposals, according to the LMA.

“The law firm’s experience in a particular type of matter or jurisdiction should be top consideration,” said Justin Pierce, Head of Trademarks and Brand Protection at Sony Ericsson, in an article by Jocelyn Allison that appeared recently in Law 360. “The sense I get from RFPs is that there is a huge tendency to go for the lowest bidder,” Pierce said, “and a lot of times that choice does not reflect the best option from a qualified perspective.”

That sentiment is shared by existing outside firms who feel the RFP process is sometimes used as a tool to negotiate rates downward, often undermining the additional value the firm can provide.

As legal departments evaluate the RFP process, they should consider the amount and type of work put out for bid and whether it is for more routine litigation matters or for high profile projects that require niche practice experience. If done correctly, RFPs will provide an information exchange that builds trust between corporate counsel and the law firm ultimately providing the appropriate opportunity for those who bid, while driving efficiency for the legal department.