With legal expenditure coming under increasing scrutiny, 4C assembled a group of procurement and legal professionals to debate the pros and cons of sourcing external legal services with procurement involvement versus the in-house legal counsel sourcing the services themselves.
Antony Ray, Senior Category Manager at 4C Associates, argued that procurement was best placed to secure legal services whereas Emmanuelle Recoules, Legal Director at SITA, debated that in-house legal teams were more effective acting on their own. The session took place at The Paramount, Centre Point, London.
The Benefits of Procurement Involvement
Antony Ray opened the debate by stating that traditionally, legal services spend had been off limits to procurement. However, with organisations becoming increasingly concerned with expenditure, procurement has begun to play an important role within the legal services department. He stated that in-house counsel sometimes does not consider cost of services a top priority and that procurement professionals can help businesses take this element into consideration.
“Procurement can take the heat from negotiations and has the skill set to reach the best deal.”
Ray underlined the value procurement professionals can bring to the table as experienced negotiators who are well placed to obtain the best deal due to their extensive knowledge of the legal purchasing sector. Other benefits procurement professionals can bring to the table through negotiations include volume discounts and free of charge secondees and training. They can also use techniques learned from other categories, such as ensuring that working hours are cost-effectively dispersed amongst Partners, Associates and Paralegals. Consultancies such as 4C are able to benchmark cost against other firms and bring objectivity to the measurement of the quality of service provided by the legal firms.
Entrusting procurement with the purchasing process also ensures that the relationship between the external and in-house legal teams does not sour as a result of negotiations. Ray added that procurement can introduce alternative negotiation techniques such as e-auctions to the process.
Ray also underlined that the Legal Services Act, which will allow non-law firms to provide legal services, will intensify competition in the sector and increase the potential savings available through effective procurement.
“The notion that procurement only cares about cost is outdated, we are well aware of the need to balance quality and price.”
Ray also challenged the view that procurement overlooked quality for cost. He argued that cost transformation professionals are acutely aware that the service and advice provided by firms and individuals needs to be good in order for deals to work. Procurement provides an external viewpoint which helps the in-house counsel objectively measure the quality of the input provided by external firms.
Ray concluded that by working with in-house legal services, procurement can help change the focus to include cost as well as quality. The key to success is Procurement and in-house counsel working together.
Why In-House Counsel is most effective alone
Emmanuelle Recoules agreed that cost was not the highest priority for in-house legal service teams when selecting a law firm but asserted that this was changing and legal department were now more cost focused.
Recoules argued that when it comes to negotiations in-house lawyers have an advantage as many have worked in external law firms. Inside information allows them to challenge estimates and invoices more effectively than procurement professionals, who have little experience of the internal workings of a law firm. This in turn renders it difficult for procurement to effectively predict costs as many legal operations are not straightforward.
“Legal departments want to reduce cost and there are two ways of doing this, head count and legal fees and we want to focus on the latter.”
Recoules added that lawyers have an in-depth knowledge of the industry and that by taking into consideration expertise, size of the firm, and knowledge of the company, they are able to select the best people for any given piece of work. Personal relationships forged by years working together, mean in-house teams know exactly what type of service they will obtain by hiring a specific external legal team. This inside knowledge also ensures a better quality of instruction which in turn can save time and money.
In-house legal teams are now more aware of cost and are able to handle many procedures including tenders themselves. A better understanding of the needs of the organisation also means the in-house counsel is better placed to assess the resources needed for specific operations. In addition value discounts and free additional services can just as easily be obtained by the in-house team.
Recoules also pointed out that due to their relationship with external firms, in-house teams can often obtain more personalised and valuable benefits.
In closing Recoules expressed her view that in-house legal services were not doing enough to leverage cost but that attitudes were changing and the situation was improving.
A procurement professional questioned Recoules assertion that having personal relationships with legal practitioners was beneficial for companies. The attendee stated that in his experience, many of his clients tended to make decisions about which external legal services to hire based on relationships and not suitability. Procurement, he argued, brings a much needed objective view.
Recoules answered that the legal sector remains a small world in which everyone knows everyone else. In-house teams know who to contact to get the best results and this goes beyond merely having a good relationship with a legal service provider. She also pointed out that switching law firms is a disruptive process and should not be undertaken lightly. A participant countered and said that procurement has moved beyond “just supplies” and now takes into consideration a wide range of issues including changing firms.
One attendee disputed the advantages procurement could provide in relation to its ability to benchmark costs. It was argued that in a market the size of the UK, legal professionals are aware of the going rate for specific services. The participant did, however, highlight one potential issue for in-house teams; recognising value in foreign legal markets.
Summing up the debate, Ray felt that the key to effectively sourcing external legal services was for procurement and legal teams to work in tandem. Procurement professionals have the skillset to complement the insider knowledge of the in-house legal team and can provide an objectivity and analysis which is essential to optimising cost.
“Procurement can add negotiation skills and an outside view which 99 times out of 100 will provide a better panel.”
Recoules agreed that the legal profession was in general fairly protectionist and that the measurement process brought about by procurement could prove useful. However, she felt that a lack of internal knowledge on behalf of procurement professionals affected their ability to effectively source external legal services.
Unsurprisingly, in a room full of procurement professionals, Antony Ray was crowned the winner of the debate.