Professional Services Update – Legal Arguments and Consulting Frameworks

The court case between Eurasian Natural Resources Corporation (ENRC) and law firm Dechert is interesting. ENRC has accused Dechert of “systematic and gross overcharging” after the firm billed the London-based mining company (which has some “interesting” history itself) £16.3m for 2 years’ work back in 2011-13 relating to a criminal investigation by the Serious Fraud Office. Last week, a high court judge said that the case could move to a formal “costs assessment” probably next year, and indicated that Dechert’s fee estimates were based on “highly unrealistic” expectations. ENRC is disputing £11.6m of the fees.

But you do wonder why the process was not managed properly during the work?  The invoices were paid at the time as well, so you have to question ENRC’s contract management processes, although the judgement does explain to some extent why payments were made. Reading that judgement, it certainly suggests buyers of legal services need to be clear about the value of getting “cost estimates” from their legal firms.

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Over to the consulting world now, and the Crown Commercial Service in the UK has responded to criticism by changing the qualification parameters for the current tender process for a new Management Consultancy framework (with multiple Lots) to be used by public sector bodies.  Previously, firms had to show over 2,200 person days of work in the last year, which really means only firms with at least a dozen or so consultant could bid.

Given the government’s oft-stated support for smaller firms and desire to see them winning more government contracts, that caused some push-back, and highlights the difficulty government buyers often have in reconciling the desire for capability and economies of scale with the SME objectives. But CCS has now changed the requirement to 2,200 days over three years. While that might still be an issue for the youngest firms, it does open the door to many more potential bidders. We understand the closing date has been extended by a week too. (Government computing reported this a while back, The Times picked up on it this week).

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Procurement people are used to suppliers going bust, but it is unusual when it is a major law firm falling into that state. But last month, the European arm of King & Wood Mallesons’ (KWM) filed for administration. That meant the end of the legacy SJ Berwin business, once one of the UK’s top 15 law firms – and a firm that did a lot of government work too. Berwin merged with KWN, who were strong in Asia Pacific, in 2013, but the integration does not seem to have gone well. Rising debt and disputes over partner pay turned into serious issues and that came to a head in October last year with the resignations of four high profile London partners, as reported by Legal Week.

However big the firm, professional services does still rely on key people, and even the largest firm suffers if they go. KWM seems to have then gone into a downward spiral in Europe with more staff deserting the sinking ship, a process which could not be arrested. With the prevalence for international mergers and acquisitions amongst law firms, buyers of legal services need to keep a close eye on what happens if their favoured providers go through such events. Not all have a happy ending.

First Voice

  1. Dan:

    KWM was a basket case from the start. By all accounts, the legacy Berwin firm was as collegiate and collaborative as a sackful of starving rats – once the big partners left, the downward spiral was inevitable. The merger never really resolved this.

    One example – partners were paid according to the invoices they issued, not the work they did. If they referred work to external third-party specialists, they got the credit. If they referred the work to a fellow KWM partner, that partner got the credit (and the resulting bonus). This led to lots of work flowing out of the firm, rather than staying in-house.

    This just shows the importance of assessing the culture and management of your suppliers, even if it means listening to gossip if need be.

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