Why is Law a Tough Sourcing Nut to Crack?

An article about services supply management in (Cal. Mgt. Rev., Vol. 49, Summer 2007, page 53), cites a study by a financial services company. The company found that its actual temporary labor prices were 6.2 percent higher than what the company had contracted for. The author's remark: "This range is typical of procured services." That remark says to me that it is common for prices of services -- dare we consider legal services? -- to exceed what was agreed to.

In my experience, law departments don't often negotiate fixed fees or even blended rates, so they have little ability to calculate pricing over-runs. But even so, it is disappointing in an age of procurement to read about services typically costing more than was negotiated, however common this has become.

Over on my own blog, I've mentioned at least nine law departments that have worked with their internal purchasing/procurement/sourcing group (See my post of Aug. 14, 2005: Oracle; April 7, 2006: GE Consumer Finance and FT Group]; April 30, 2006 #5: Microsoft; Aug. 2, 2006: Sears; June 16, 2006: Bank of Ireland; May 9, 2007: Pitney-Bowes; July 29, 2007: BMO Financial Group; and Nov. 13, 2007: Dell.). In my consulting, I have worked with at least four other law departments that have drawn on the skills and disciplines of their procurement colleagues. Many more company's law departments have done so (See my post of March 13, 2007: 2006 Hildebrandt Law Department Survey found 11 percent of 201 companies agreed that within their company, procurement has an active level of participation.)

Other comments on this blog have explored the joint efforts of law and procurement (See my post of Feb. 20, 2005: procurement; Aug. 20, 2006: a "purchasing" perspective; March 13, 2007 regarding some survey data; and July 29, 2007 on software for a procurement process.). Even so, law has proved to a be a tough nut for sourcing groups to crack (See my post of Jan. 13, 2008: delays of procurement processes sap their attractiveness; Jan. 16, 2008: legal spend is on the frontier of procurement's attention; Jan. 8, 2008: a bizarre case study; and March 20, 2007: best practices in procurement talent management.)

In my continued postings on Spend Matters, I'll explore many of the specific reasons why law is a tough sourcing nut to crack. Consider this but a hint of what is to come. Perhaps one of the bright spots about the current economy for law departments and procurement organizations is that company-mandated cost reduction efforts will actually help bring both groups together for the common goal of shareholders.

- Rees Morrison