Procurement savings – buying legal services, badly

We talked yesterday about measuring savings, and how most procurement teams find they can’t get away from this as a measure. But here’s a good example of it not driving the right behaviour.

I spoke to the Partners of a large London law firm recently to help them understand procurement people and processes. Increasingly they have to deal with us, whereas a few years back they would have dealt with internal legal staff in their clients' organisations or directly with various budget holders.

I spoke to a major law firm recently - seemed to go down quite well....

And the biggest complaint was procurement staff using simplistic, tactical bidding mechanisms as the major part of the process. So reverse auctions (not complex, market-informed sourcing stuff either, just bog standard auctions), where the ONLY criterion was the hourly rate of a few designated levels of lawyer.

Now I have no great desire to see partners in law firms making millions, but you can see the flaws in this process. It favours firms who promote everyone to Partner at the age of 25 so they can charge the highest banded rate. It makes no allowance for the skills of the lawyer - I remember being stunned by how much we paid a QC for advice in one of my CPO roles, then realizing that she sorted out a problem in about 2 hours that was potentially going to cost us weeks and tens of thousands of pounds to resolve if we hadn't seen her.

Anyway, this firm asked me what drove this behaviour. It is probably, I said, how the procurement people are measured. If savings is the dominant mechanism, and they can get away with "projected" rather than "actual" savings, the easiest thing is for them to say "we've got the average hourly rate down from £200 to £150, therefore that is 25% off the total legal spend of £10million, so we've saved £2.5 million".

Another flaw here is that the internal users may find that the new, lower cost provider isn't up to the job, and will revert to original firm (it's rare to find an organisation where procurement can "force" 100% compliance to preferred legal providers in my experience).

There's no easy answer to this, but it does suggest the need to make sure "line item savings" is not the only driver or measure when we look at performance. And the most appropriate measures will vary by category.

Oh, and other thing that really annoyed my legal friends? Getting tenders or contract documents that had obviously been designed for purchase of equipment, stationery or maintenance contracts rather than for complex professional services.  Asking lawyers how they will make sure their staff don't suffer from vibration-related industrial injury, that sort of thing...  Yes, it does still happen!

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Voices (3)

  1. Final Furlong:

    Even if you’re buying ‘intellectual capital’, you can, and should, deploy best practice. Always remember this adage “suppliers treat their customers differently” (step forward Will Parsons…). Whether they be lawyers, consultants, or advisers (tax, audit etc), they will respect you much more as a client if their experience of you is that of a scalpel as opposed to a hacksaw.

  2. RJ:

    1. In answer to bitter and twisted, and at the risk of seeming sycophantic (or possibly missing the irony in the comment above), Peter’s own book, co-written with Fiona Czerniowska, on this topic is a good introduction to buying professional services with some helpful tips and real-world examples.
    2. Totally agree with all of the comments above, Peter. As a purchasing manager/consultant with many years’ experience in buying consultancy, legal services, audit etc I still find it astonishing how many of our procurement colleagues rely on the “objectivity” of the RFP or eAuction process to deliver “savings”. A client pointed out to me recently that if their financial advisers got their advice right he would save £40M off his VAT bill “so to be perfectly honest I don’t care if that advice costs me £250K or £1M, just so long as they get the result.” What’s the point in shaving 5% off your lawyer’s day rate if they lose every case?
    3. I’m currently involved in a tender for financial consultancy where the client wants to use standard terms asking for the QA certification of all equipment used on the project!

  3. bitter and twisted:

    Can anyone recommend a book about ‘Buying Expert Help’.
    ie How to purchase services you dont understand (if you did, you wouldnt need to buy it!)

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