Articles Posted in Outside Counsel

You have put a number of firms through the wringer and picked one. The winner exults, the other firms gnash their teeth. The only fair step is to tell the disappointed firms why you did not pick them and give them enough detail so that they feel they learned something useful for the next opportunity.

This is the test you should set yourself. If you can’t articulate why a particular firm did not make the cut, you haven’t thought through your criteria well enough, reached a shared consensus, or gathered enough information. (I won’t even countenance the possibility that you lack the courage to tell a partner the bad news.) Don’t fob them off with “chemistry.” Tell firms something specific so that at least they understand your reasoning, even if they can’t accept your conclusion (See my post of July 27, 2007: honesty toward disappointed vendors.).

Some law departments put out for bids from law firms more than one cluster of work in the same offering. The general counsel decides that if the department is going to soldier through a competitive bid process, it might as well include several pools of projected legal services, even if they are in different legal areas. Further, the larger fees induce firms to try harder. The exercise makes more sense for both the department and the firms, as more savings can be wrung from a large amount of spend. Bigger spend, even across unrelated areas of law, increases the value and therefore the logic of the process on both sides. Efficiency and economics support multiple bundles in competitions.

When bundles of work are on offer, the advantage goes to the law firm that can take on more of them, all other factors being reasonably the same. After all, why not deal with a single firm rather than two different firms. True, the evaluation process complicates and larger [read, more expensive] firms enjoy an edge, but the benefits from multiple-bundle competitions make up those consequences.

An earlier post lays out nine reasons why a general counsel might undertake a competitive bid process to select a law firm (See my post of Oct. 10, 2008: nine justifications to compete work.). Opposing those advantages, a like number of disadvantages of competitions deserve notice. Here are the arguments against competitive bids that I have encountered in my years of consulting, in roughly the order of frequency they are voiced.

(1) It’s a meaningless exercise because “we already know who we will pick” (See my post of Sept. 3, 2006: sham competitions; Oct. 29, 2006: unfounded suspicions by firms of wired selections; and Feb. 15, 2006: the incumbent’s advantage.);

(2) Competitions done well soak up too much time, and money, and attention;

So much do the drums beat in favor of competing work among law firms, general counsel might not pause to consider fully the many reasons for such an effort. Here are nine justifications, listed roughly in the order that I think general counsel invoke them.

(1) Cost savings owing to the larger volume the chosen firms will receive and therefore, presumably, the better rates and efficiencies. Competitive bids and convergence go hand in hand;

(2) Administrative ease, because fewer firms’ billing systems need to be coped with along with fewer formats of bills, and perhaps even fewer bills in total;

Preparing for my upcoming webinar on September 30th about RFPs to law firms, I pulled together four recommendations that I have not written about.

1. Anticipate questions. Once your Request for Proposal (RFP) is in good shape, have two lawyers who were not involved in the type of matters covered by it or the drafting of it read the RFP carefully and critique it. They should scrutinize it not for writing style or typos but solely to spot ambiguities, missing information, and questions firm partners might want to ask. Then, do your best to answer those plausible questions or confront yourself as to why you can’t or won’t at least try to answer them. The more comfortable firms feel about the facts, the fewer explanations you will have to give later and the lower the fees they will propose.

2. Remove boilerplate (unless you are a government entity and required to include various provisions). Delete throat clearing at the beginning about “conscientious stewards of shareholder assets blah blah blah.” Firms know why you are seeking bids on work. They know you have no obligation to select a firm, that you can choose or withdraw as you will. Every firm knows they bear their own costs, their proposal remains your property of the issuer, and if they don’t follow your rules, you might disqualify them. What I do not consider to be boilerplate is the mandate that they not speak or write to anyone within the company about the RFP work except the named contacts.

Many general counsel are invited to speak at retreats of their primary firms. Here are some topics that will bring value to the partners and derivative value to the law department.

1. Myths likely held by the law firm about the law department

2. How frequently and by what means the law department picks law firms

An RFP sent to ten or more law firms generates lengthy and detailed responses. If firms can reply as they see fit, your evaluation team will have a hard time picking out of the mass the comparable answers. Better, much better, to tell firms precisely how you want them to present their responses.

I have seen this done with spreadsheets. Every answer sought in the RFP had its place in the spreadsheet. The rigidity of that approach is apparent, but it certainly made the collation of answers dramatically easier. A less Prussian approach asks for the firms to complete tables in Word documents. The law department can easily copy and paste tables into Excel. At a minimum, instruct firms to follow the format of the RFP questions when they respond.

How long does an RFP process take? Here are some guidelines, but the bottom line is that three months should accomplish it. That means that this process doesn’t fit if you need to select a firm to represent you in a major lawsuit just filed against you. There are ways to streamline this for such a situation.

Two weeks to draft RFP. Once you decide to bid out some chunk of legal work, you should be able to draft a straightforward RFP in two weeks (See my post of Sept. 28, 2008: questions, boilerplate etc.).

Three weeks with the firms. Give firms a week to read and think about the RFP and formulate their questions. Answer the firms’ questions in a week and give them another week to prepare their proposal.

A profile of Anne Chwat, the general counsel for Burger King Holdings, in Corp. Counsel, Vol. 15, Sept. 2008 at 71, mentions she hosted a summit in 2008 for her company’s primary external law firms. The summit’s purpose was “to explore ways in which we could work together to keep costs down while ensuring that our outside counsel are fairly compensated for the great work they do for us.”

Who bears the costs? I believe the law firms should pay their way and absorb their time. They are investing in the long-term relationship.

Will partners speak candidly? That depends on whether their firms are competing for work. I suspect that many partners will censor their most potent comments.

General counsel, of the species homo lex riskus aversus, instinctively want to clothe their request for proposal in the chain mail of a non-disclosure agreement (See my post of May 3, 2007: NDA’s and confidentiality commitments.). “Upon penalty of legal annihilation, you must preserve the confidentiality of this document, selection process, and its conclusion.”

To a slight degree, the general counsel may want to thwart a deluge of solicitations from law firms. That worry is misplaced. The firms that have been included will not want to open the gates for other competitors, so they won’t talk. Other firms that manage to find out will recognize that you have already invited a set of firms and that they face an uphill struggle to be included. A more important objection is that you want to choose a good firm, so why not let hopefuls present their favors?

A general counsel might impose silence on recipients of the RFP because of some belief that the methodology of the process is more clever than others have achieved, and its disclosure would fritter away a trade secret. Unlikely, I submit, as many big companies have opened the kimono afterwards to spell out every step of their process (See my post of Sept. 12, 2008: detailed article on Pfizer’s RFP process; Aug. 21, 2005: publicity and competitive secrecy.).