Best of Spend Matters Guest Posts
Spend Matters enjoys the breadth of insight brought by other perspectives, and has enjoyed wonderful contributions from its guests.
Why is Law a Tough Sourcing Nut to Crack?
Myth or Reality -- Eight Assumptions Procurement Professionals Harbor About US Legal Departments
As is often the case, there are kernels of truth in misconceptions -- perhaps even whole corn cobs. Nonetheless, I have heard a number of assumptions among sourcing experts when it comes to legal spend, not all of which hit the mark. And they're certainly worthy of discussion, so here goes:
Myth 1 - Legal departments don't know how much they spend.
Fact - Most departments know their total domestic legal spending reasonably well, or as well as the accounting department knows it. Outside the headquarters country it is a different matter.
Myth 2 - Legal departments don't analyze the components or trends of their spending.
Fact - Not a myth -- this charge hits home quite commonly.
Myth 3 - In-house attorneys are ignorant of tools and techniques to manage costs. Worse, they disparage such methods.
Fact - Some of this lack of interest may be true. "Managing lawyers is an art, not a science," lawyers will plead.
Myth 1 - Legal departments don't know how much they spend.
Fact - Most departments know their total domestic legal spending reasonably well, or as well as the accounting department knows it. Outside the headquarters country it is a different matter.
Myth 2 - Legal departments don't analyze the components or trends of their spending.
Fact - Not a myth -- this charge hits home quite commonly.
Myth 3 - In-house attorneys are ignorant of tools and techniques to manage costs. Worse, they disparage such methods.
Fact - Some of this lack of interest may be true. "Managing lawyers is an art, not a science," lawyers will plead.
Eight Best Sourcing Posts of May 2009 from Law Department Management Blog
I've selected eight posts from my Law Department Management Blog that I suspect will be interesting from an internal sourcing group standpoint and hopefully valuable to many other Spend Matters readers as well. Here they are.
1. Auctions: pick the best bidder but for one dollar more than the second best bid May 28, 2009)
This is a way to lessen the likelihood that the prevailing bid is too low for the winner to perform well. This method increases the chance that a fixed-fee arrangement will succeed for both sides.
2. Four ways to look at concentration regarding a department's use of law firms (May 29, 2009)
The pattern of a legal department's use of law firms has several formulations. Commonly, concentration describes the number of firms retained, but there are other ways to convey different aspects, such as according to matters or only firms paid above a certain amount.
3. Try a double blind evaluation of law firm proposals (May 29, 2009)
The bias of pre-formed impressions makes evaluations of proposals from firms quite problematic. Evaluators in the legal department like or dislike some firms even before they read the proposal. One way around such favoritism is to conceal the identity of the firms in large parts of their proposals.
1. Auctions: pick the best bidder but for one dollar more than the second best bid May 28, 2009)
This is a way to lessen the likelihood that the prevailing bid is too low for the winner to perform well. This method increases the chance that a fixed-fee arrangement will succeed for both sides.
2. Four ways to look at concentration regarding a department's use of law firms (May 29, 2009)
The pattern of a legal department's use of law firms has several formulations. Commonly, concentration describes the number of firms retained, but there are other ways to convey different aspects, such as according to matters or only firms paid above a certain amount.
3. Try a double blind evaluation of law firm proposals (May 29, 2009)
The bias of pre-formed impressions makes evaluations of proposals from firms quite problematic. Evaluators in the legal department like or dislike some firms even before they read the proposal. One way around such favoritism is to conceal the identity of the firms in large parts of their proposals.
In-House Legal Spend: Ten Metrics Toward Visibility
The cost of ownership for corporate legal departments can be elusive. Here are 10 comparative metrics for US law departments with more than five lawyers on staff that may help shed some light on your legal spend:
1. Legal departments consume approximately 0.5% of their corporation's revenue each year including their outsourcing.
2. That benchmark for "total legal spending" does not include settlements, judgments and fines, which vary widely but are typically much less.
3. A legal department's internal expenditures are typically about 40 percent of total legal spending.
4. On the order of 75 percent of the internal departmental budget is comprised of salaries, bonuses, and benefits.
1. Legal departments consume approximately 0.5% of their corporation's revenue each year including their outsourcing.
2. That benchmark for "total legal spending" does not include settlements, judgments and fines, which vary widely but are typically much less.
3. A legal department's internal expenditures are typically about 40 percent of total legal spending.
4. On the order of 75 percent of the internal departmental budget is comprised of salaries, bonuses, and benefits.
Five Questions That Should Not be Asked on an RFP for Legal Services
Law departments deserve information from prospective law firms and service providers and have a right to ask them probing questions. Nevertheless, having reviewed several RFPs lately, I object to several questions. The following questions, modified only slightly, are blatantly intrusive and unfair. Even procurement managers should blush.
- Whom do you regard as your major competitors?
- How do you compare your firm or company against your major competitors?
- What are your key strengths relative to theirs?
- What is the contact information for one client that has ceased to do business with you within the last two years?
- What are the attrition rates over the past two years among your employees who would be working on our matters?
- Whom do you regard as your major competitors?
- How do you compare your firm or company against your major competitors?
- What are your key strengths relative to theirs?
- What is the contact information for one client that has ceased to do business with you within the last two years?
- What are the attrition rates over the past two years among your employees who would be working on our matters?
Four Uses of Procurement Staff by Law Departments
For many companies in the Global 1000, true procurement influence over legal costs still represents one of the last frontiers of spend influence. However, I suspect this is a frontier that will increasingly come under procurement influence dominion, starting first with outposts and forts and eventually moving into sustainable settlements designed to last permanently. I will continue this analysis on Spend Matters looking at domestic legal spending in future posts, but I'll start by providing some evidence across the pond.
Two paragraphs from a survey report offer some insights into how European law departments use procurement personnel. The data comes from PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at 23. Of the respondents to the magazine's 2006 survey, 18.3 percent of the law departments involved procurement staff, up from 12.9 percent in the 2005 survey. That's a significant increase in one year (See my post of March 1, 2008: procurement with 17 references).
Two paragraphs from a survey report offer some insights into how European law departments use procurement personnel. The data comes from PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at 23. Of the respondents to the magazine's 2006 survey, 18.3 percent of the law departments involved procurement staff, up from 12.9 percent in the 2005 survey. That's a significant increase in one year (See my post of March 1, 2008: procurement with 17 references).
Many Law Department Management Breakthroughs are Largely Tied to Spend Management
It dawned on me recently that many of the breakthroughs in law department management in recent decades are largely related to reducing and managing costs. While on vacation a while back, I came up with a list of the ten management changes that I have come to view as the most significant throughout my over 20-year career consulting to general counsel. I've listed these in declining order of importance (at least in my humble opinion), but see if you can pick out the ones most related to spend reduction and cost management.
Across the Pond: How are Law Departments Leveraging Procurement Staff?
Procurement organizations are increasingly getting involved in helping law departments (of course the definition of "help" can vary significantly depending on whom you ask). But how is procurement getting involved exactly? Two paragraphs in a survey report offer some insights into how European law departments use procurement personnel. The data comes from PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at page 23. Of the respondents to the magazine's 2006 survey, 18.3 percent of the law departments involved procurement staff, up from 12.9 percent in the 2005 survey. That is a significant increase in a year (See my post of March 1, 2008: procurement with 17 references.)
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.
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.
