Author: RWS_01

Over 20 years’ experience developing and implementing effective business development strategies in law firms across Australia and Asia.

Does competitive tendering deliver best value for money outcomes?

“Efficiency isn’t just about doing more for less. It is about finding the right balance between money, time and quality.”

– [UK] Network Rail Infrastructure General Counsel of routes, Dan Kayle

One of the biggest challenges a General Counsel faces these days is finding a way for his/her company to procure legal services in a way that:

ensures a quality service, at
a price that is fair to the company, while
ensuring that the service provider remains a viable and ongoing business.

For a number of years in Australia the primary mechanism for achieving this has been ‘competitive tendering’. But evidence is now coming to light that competitive tendering may not actually be delivering the best value for money outcomes that clients had hoped for. Which raises the question:

Is competitive tendering the best way to procure legal services? And if not, what, if any, are the alternatives?

For those (living under a rock) who may not be aware, ‘competitive tendering’ in Australia comes in many guises: panel, project, parcel and combinations of all of these.

For the purposes of this post however, I’m going to state that ‘competitive tendering’ happens whenever a company ‘pitches’ its service needs among one or more of its providers. I’m also going to extend this by saying that the evaluation weighting of the winner of this process favours ‘price’ (read lower) over ‘outcomes’ (read performance).

And herein lies the flaw with competitive tendering that has prompt this post: because in deciding to go with one service provider over another based on an evaluation criteria of price, it is arguable that such a decision comes at the cost of quality.

To be clear, I am not suggesting that legal service providers purposely undermine the quality of the advice they give. Nor am I saying that there is a lack of understanding that there is a trade-off between cost and quality – after all, you don’t get a Rolls Royce at the price of a Mazda and most lawyers today know that.

What I will suggest however is that if law firms are being asked to go through a competitive tender process, which is often followed by a BAFO (Best And Final Offer) process, then in-house counsel have to accept that there will be a fall off in the quality of the service they receive.

Which leads me to this: Is there a better way of doing this?

Negotiated Contracts

I would argue that if you’re trying to achieve an outcome at a price that is agreeable to your company, then negotiated contracts far out-weigh competitive tenders.

To be clear, negotiated contacts can – and often are – competitive.

But the biggest difference between a competitive tender and a negotiated contracts is that the client has pre-selected a set of achievable outcomes – with a group of providers that they believe can deliver on those outcomes.

And we can all work towards that (i.e. it is not all price driven; so-called ‘race to the bottom’).

+-ve / -ve debate

Competitive tenders stimulate and promote competitive behaviours. Among a group of adversarial and highly competitive lawyers, will this provide the best results for your company?
Costs associated with competitive tenders can be enormous: is this the best way to conduct a relationship?
Competitive tenders deliver the most competitive outcome, which is not the necessarily the best value and price to your business.
Negotiated contracts can be the first step in setting out your Legal Project Management (LPM) approach to the matter.
Negotiated contracts facilitate a discussion around the client’s different value points.
Negotiated contracts allow all sides to come to a clear understanding of what the various expectations are.

Now don’t get me wrong, despite evidence showing that competitive tendering isn’t working, and that we continue to reward poor performance – provide it is done at the right price, all I’m asking is this:

Isn’t there a better way of doing this?

rws_01

Do you know who your competitors are?

In a highly competitive market such as the legal industry, understanding and knowing who your major competitors are is crucial to the successful identification and implementation of your firm’s strategy.

When assessing this issue, most of us naturally look outward at our traditional, and even new, market competitors. In short, we try, as best as we can, to compare apples with apples.

That’s why the publication of results from a new survey in yesterday’s Legal Futures, one of the UK’s leading legal news websites, makes for an interesting read. Because, to my mind, understanding and deciphering who your firm’s principal competitor is would seem to remain a misunderstood issue.

Why do I say this?

Well, in the article Legal Futures (quoting from a recently published market survey) states that:

“more than two-thirds [of London City firms] see other professional services firms as the overwhelming competitive threat among recent entrants to the profession.”

By “other professional services firms“, what they mean is the Big 4 accountants.

While the re-emergence of “other professional services firms” (and for that matter so-called “new law” firms) is concerning, they are currently a long way from being the “overwhelming competitive threat” to law firms.

No, that title belongs to another group much closer to home: your clients.

With the level of work that clients are now taking back in-house, or not bothering to do at all, they are without doubt the “overwhelming competitive threat” to the current law firm business model. And, this is not cyclical but structural.

Crucially, understanding this is of paramount importance if firms wish to survive the next 5, 10, 15 years. Because it reshapes everything we do. How we try and win work. The type of work we are trying to win. And even the nature of the relationship we have with our client.

In the long term it will determine the way we measure and reward. It will dictate how we charge, and it will determine whether we succeed or fail.

And for good measure, here is another thing that is rapidly changing: who the client is can no longer be taken for granted or assumed. Because more often than not, it’s no longer the person you have the working relationship with.

rws_01

Is anybody else getting tired of this NewLaw vs BigLaw debate?

Last week saw the latest publication of the Commonwealth Bank’s Legal Market Pulse Report. What was a quarterly report, became half yearly, and would now appear to be annual (a great shame if true as many of us saw this report as an important benchmark of how the industry was tracking).

Anyhow, leaving that aside – and despite some changes to the structure of the report (it seems to be missing growth practice and geographic areas for example – which I loved), it remains an important read for those of us in #Auslaw.

But now a brief rant:- as you would expect of a report researched/undertaken by Beaton (which I understand is the case), it’s almost zealous like in its consideration/debate of so-called ‘NewLaw’ versus ‘BigLaw’ (do a search of the term ‘NewLaw’ and see how many hits you get if you don’t believe me!).

And I don’t get this ongoing fixation.

And yes, I was part of the twitter conversation that saw the birth of the term NewLaw by Eric Chin (who was then at Beaton) and thought it to be an interesting term/concept at the time.

But I’m starting to seriously wonder if we haven’t moved on from all this? If, indeed, once again, we are having the wrong conversation.

So what I want to ask is this:

Shouldn’t we start to have a real discussion about whether or not your firm is ‘full service’ (BigLaw) or ‘specialised’ (NewLaw) – and what that actually means; rather than NewLaw versus BigLaw, with all the inferences that come with that around old ways of doing law versus new ways?

Because I genuinely believe that in a market that is increasingly hard to differentiate in, this is a far more important question.

rws_01

In response to Patrick Lamb

Overnight Australian time, Patrick Lamb wrote a post (‘The importance of understanding context.‘) in which he makes several comments on a recent post by me.

I will start by saying that I know Mr Lamb, by reputation at least, and I have very high regard for him. I was thinking about it when deciding whether to write this post this morning and I believe I have been a follower of his blog for about 10 years (could be slightly less, maybe longer).

The following are three brief responding comments I would make to Mr. Lamb’s post:

I strongly believe that any discussion that includes a component that AFAs are cheaper than hourly rates is the wrong discussion. Data-driven or otherwise. Do I want to see data showing me that AFAs are cheaper than hourly rates? Probably not. Why – because it would assume like for like, and the fact is behaviours of lawyers differ under the two structures. And, the only way I can see of getting close to like for like comparables is by asking fee earners under a fixed fee structure to track time – and my own view is even then the statistical data that falls out of that will be tainted and virtually useless for any meaniful discussion. So I’m not really interested as I believe it will lead me – and many others – down a conversation path that I fundamentally believe is the wrong one to be on: which is that AFAs are not a comparable to hourly billing. [as an aside: any conversation I have been involved in which starts with “data suggests AFAs are cheaper than hourly billing” typically ends up being a race to the bottom and rapidly results in a commoditised product.]
I believe a “value equation” is precisely that: value must be experienced by all parties. If the value discussion results in the client believing they are getting great value but the lawyer feeling they are being cheated, then you are going to have a problem. So my own view is that any “value conversation” is not a one-way street and, as with the case with any pricing discussion, lawyers need to know when to walk away from the discussion.
My comment on “if you cannot do AFAs, stick to hourly billing” is somewhat tounge-in-cheek, but has a serious undertone. Value pricing/AFAs are not easy. It takes a particular skill. It needs to be learnt. So if you wake-up one morning and decide you want to do value pricing/AFAs, by all means get help. But, whatever you do, don’t set out on that road without some guidance because it will be a road to ruin – stick to hourly billing (if your clients are letting you) until you have learnt how to price otherwise. And it is also my view that too many lawyers in Australia are failing to understand this and are implementing AFAs that are fundamentally “hourly rates in drag” as Mr John Chisholm has been known to say.

I want to finish this post on what I consider a positive. I wholly agree with the following comment by Mr Lamb – and comments like this are largely why I read his blog:

AFAs can provide great value to lawyers, but only if they change the way they do their work. The old way is burdened with fat and excess, and it is why clients grew so frustrated with the billable hour. Second, firms need to decide if customer service is a core value of the firm. If it is, you find out what is of value to your clients and you figure out how to provide it. It is an exceptionally rare matter in which, over the duration of a matter, an AFA cannot be used. The challenge must be to carefully and precisely identify the client’s objectives. Once that is done, a fee to incentivize the accomplishment of those objectives is possible.

rws_01

‘Do fixed fees need to be cheaper than hourly rates?’

Earlier this week Corporate Counsel published an article (“What GC Thought Leaders Experiment Is About (Hint: Not Cost)“) by Firoz Dattu and Dan Currell of AdvanceLaw in which they comment on a recent open-letter by 25 GCs [‘GC Thought Leaders Experiment’], which rightly has received a certain amount of industry attention.

Despite indicating that cost is not the primary issue in the project, Data and Currell stated:

“Here are three of the questions we are excited about—and these are just the beginning:

[First]…

[Second]…

Third, flat fees. A natural question about flat fees or other alternatives to the billable hour is whether they are cheaper. You now know that we think this is a half-question (and not the interesting half). The whole question is: do alternative fees work better, all things considered?”

Let’s look at that third question again with highlights by me:

“A natural question about flat fees or other alternatives to the billable hour is whether they are cheaper.”

Actually, that’s a very, very long way from the natural question.

But then we get…:

“The whole question is: do alternative fees work better, all things considered?”

And while that question may seem a lot closer to the answer we seek, it is still – well – the wrong question.

Flat fees, or other alternatives to the billable hour, should not be about whether they are cheaper. In many cases they are more expensive.

Nor, per se, are they about whether they work better (and by that i am unfairly reading “easier”). In some cases they are far more complicated and getting them to work is a real art of communication (that is, if you have scoped the matter and given appropriate thought to LPM, etc).

But, crucially, what alternatives to the billable hour should be about is simple: ‘Do they offer better value?’; To the client? And to the lawyer?

And if they don’t, the simple truth is this: maybe you shouldn’t be using them.

rws_01

ACCA Report: there has been a 30% increase in external legal spend in 2 years

Last month the Association of Corporate Counsel Australia published its ‘2017 Benchmarks and Leading Practices Report‘. Two leading take-outs from this Report being bounded about are:

‘the average total legal spend for ANZ in-house legal departments has increased from $3.1M in 2008 too $4.3M in 2017’, and
‘[average] external legal spend has increased from $1.8M in 2015 to $2.6M in 2017, representing a 30% increase.’

In what many, including myself, have called one of the world’s most competitive legal environments, with most reports showing flatline revenue levels for law firms at best; the fact that a report by in-house itself shows that there has been a significant uplift in external legal spend over the two years between 2015 and 2017 should give us comfort. But for some reason that doesn’t seem to be the case. Clearly this uplift isn’t being shared equally among firms and there appears to have been some significant winners, with rather more losers.

Other take-outs from the Report include:

More than half (51%) of GCs time is spent on ‘urgent high importance/highly strategic work’ – with the most essential skills and attributes required to being a successful GC being ‘the ability to translate complex information into simple communications, active listening, strategic thinking, broad business understanding and influencing skills‘. I would argue that many of these skills need to be top of mind for private practitioners too.
80% of organisations rate project management as an important tool for improving the efficiency of in-house legal departments – yet more than half of in-house legal team (63%) have ‘no formal workflow management system‘.
Worryingly, the dominate project management principle used for ‘complex matters’ briefed out to external providers is, to ‘scope the work‘ (49%) [‘Obtain quote(s)’ is number 3 among cited project management practices]. I believe that if external legal providers are genuine in their declared aim of being trusted advisors to their clients, they may want to look at helping in-house up-skill in this clearly important area.
The top three considerations used to determine when matters should be outsourced or in-sourced are: (1) Whether external expertise is required (82%), (2) Current and projected internal workloads (59%), and (3) Amount of budget available for outsourcing (30%).
Work types most likely to be briefed externally are (1) tax (33%), (2) litigation/arbitration/ADR (19%), (3) employment/workplace relations (17%), and (4) banking and finance / capital markets (17%).

All importantly, in such a competitive market, the primary reasons behind in-house legal departments choosing one firm over another are:

‘the chosen firm demonstrates an understanding of their requirements’ (72%),
‘has specialist expertise’ (67%)
‘provides good value’ (53%)

With the drivers of satisfaction being:

‘demonstrated understanding of the role of in-house counsel’ (91%)
‘demonstrated understanding of the organisation and its goals and priorities’ (89%), and
‘the provision of commercially applicable advice’ (89%).

On the issue of billing:

42% said that ‘hourly billing was not ideal’, but no alternative was provided,
disappointedly, 71% cited ‘discount hourly rates’ as the most common form of billing arrangement, but
the adoption of AFAs has increased from 28% in 212 to 42% in 2017.

Nonetheless, 88% of in-house counsel are ‘satisfied with their top provider’, meaning it remains extremely difficult to break an incumbent relationship.

One final take-out from the Report that needs to be seriously taken on-board by external (private practice) legal providers is this: – “women now account for 50% of head of legal functions“.

rws_01

‘Coopetition’

“Coopetition” = Cooperating while competing.

I heard a new word today, ‘Coopetition‘.

In an article in Philippine publication Business Mirror, Stephanie Tomampos credits Philippine Science Secretary Fortunato T de la Pena with using the term during his keynote address at the opening ceremony of the 17th Conference of the Science Council of Asia at the Philippine International Convention Centre on June 14th.

Although not directed at lawyers, but at scientists who cooperate while competing for research funding, I thought the word summed up well the role of the modern law firm; where firms are increasing being asked to cooperate with each other in order to contribute towards inclusive overall development of the client’s business.

Whereas in the past this sort of cooperation may have been limited to unbundling, LPO or labour arbitrage, today cooperation between the various legal service providers of a client extends way, way beyond this.

We see it in the way firms are now required to cooperate with each with the IT platform(s)/environment the client uses. We see it in the way we pitch innovation to clients, where if we work with multiple firms servicing the client we cooperate with each other on innovative ways of doing the job. We see it in the way we are being asked to work with project teams, often with New Law providers such as Lawyers on Demand and Crowd & Co.

Driven largely by a need for cost efficiencies, what we are increasingly seeing is a demand by clients for a cohesive, inclusive, approach to their client experience (CX) from all of their legal service providers.

This means that while we very much remain competitors, in the new world order we need to cooperate with each other in order to be in a position to compete at all!

rws_01

How often does your law firm managing partner call clients to thank them for giving you instructions?

It may sound slightly crass, but when was the last time your firm’s Managing Partner phoned a client to thank them for giving you work? Indeed, have they ever phoned a client to say thanks for the work they give the firm?

Because, crass as it may sound, sometimes in life doing the really simple – right – things well gets lost in our haste to over complicate things and reinforce to all how important we are the role we play in this little merry-go-round.

All of this was brought home to me recently when reading an article on abovethelaw.com titled ‘Biglaw Idol’ — Or, How In-House Lawyers Actually Select Outside Counsel: Picking a law firm for a seven-figure engagement can take under five minutes by Stephen R Williams.

Stephen is in-house with a multi-facility hospital network in the US Midwest and in this article he sets out fairly succinctly and scarily (from an Australian business development perspective) near-verbatim transcript of a recent discussion on how the in-house team decided which private practice firm they would retain for “a rather sizable engagement” (the seven figure sum mentioned in the article’s title).

Turns out that once they had decided a select group of firms (5) who they thought could do the job, one of the deciding differentiators that set the winning firm out from the others was the fact that:

Their managing partner also called me this morning to thank me for considering them. He said he understood they may not be who we ultimately retain, but he appreciated the confidence we had in their firm for even considering them.

The GC’s response?

Well, it may surprise you:

GC: Wow, Managing Partner called? I passed over his shop a few months ago in favor of Biglaw 2 and thought he was still mad at me. I am impressed he called. Look, if we can’t get an answer from Biglaw 5 and Biglaw 4 is ready to go — I am signed-off, bring in Biglaw 4.

That Managing Partner just won his firm a seven figure engagement. With one phone call. And he didn’t even say thanks for hiring us. He said, “thanks for thinking about hiring us”. Pretty powerful stuff.

Food for thought…

rws_01

Defining success…

The latest Bellwether report from LexisNexis (The Art of Success: Why Independent Law Firms are Thriving) was published earlier this week.

As always, the Report is an interesting read (and I look forward to the next two publications later this year), but what caught my attention in this particular Report was the following definition of “success“:

Defining success

Most independent law firms see success as a trinity of three important elements:

the quality of their expertise,
solid commercial logic,
commitment to treating staff and clients with respect.

Going on to say:

Being a ‘good’ lawyer isn’t just about knowing your law or being a skilled craftsman. It’s about understanding how to apply the law to serve your client’s business and personal needs. It’s also about exercising common sense. Having excellent people skills is as important as being commercially savvy.

Hands up, I have to say I wholly agree with all of the above (but I would add a few others).

But, “Most independent law firms see success” – I doubt that’s completely accurate, at least from an Australian law firm perspective.

My experience has been that most Australian law firms, independent or not, see success as a financial metric. And it doesn’t really matter how you reach that financial metric.

But wouldn’t it be a wonderful step in the right direction if we all printed out and used the above definition of success…

rws_01

Musings on the announced closure of Clifford Chance’s Bangkok office

At the end of last week I read with sadness the decision by Clifford Chance (CC) to close its Bangkok office. While I’m always saddened to hear that a law firm will be closing the doors on one of its offices, in the case of CC Bangkok it’s personal.

Let me take you back to 1998

The year was 1998, and what would become known as the Asian Financial Crisis (AFC) had just come crashing through the door like an unwanted drunk guest to spoil what as a pretty good party. At the time this was still known as the ‘Tom Yum Goong‘ crisis in the local Thai press and the horrific murder of Australian accountant Michael Wansley (shot 8 times) was still a few months away (10 March 1999).

In short, the full measure of the financial mess, both in Thailand and the region, was only just becoming known.

What was clear however was the fact that a number of international law firms were making serious noises about entering the local market. Allen & Overy, Linklaters, Herbert Smith, Mallesons, White & Case, Freehills, Freshfields, Coudert Brothers, as well as Clifford Chance all had some form of ‘fly-in, fly-out’ operation and were either opening a local offices or expressing an interest in doing so.

Meanwhile, Baker & McKenzie had been around for so long that almost anyone who was anyone in the local Thai legal world had ‘graduated’ from that firm.

Working with one of Thailand’s leading local firms at the time – Wirot International – I was privileged to have had a front seat to much of this activity.

If you had asked me early in that year (1998) who Wirot Poonsuwan – Founder, Managing Partner and Owner of Wirot International – would have merged with (and yes, he was fortunate enough to have several dance partners), my answer would likely have been Herbert Smith.

In the end Clifford Chance offered him a sweater that he simply couldn’t refuse and we all moved over to what would become known in Thailand as Clifford Chance Wirot (CCW) on 1 January 1999.

I often wonder what would have happened if Wirot had gone with Herbert Smith? Local legal history would have been very different, that’s for sure.

As it is, over the course of the next two years core members of what was Wirot International would leave CCW for Linklaters, Freshfields, Courdert Brothers (anyone remember them? They took on Freshfield’s operations when they departed Thailand) and, eventually, Norton Rose (which itself was a sort of offshoot of Linklaters).

1999 would be a big year for CC. Not only was it the year the firm ‘merged’ with Wirot International, but they would also merge with Rogers & Wells in the US that year (we would joke that it was a three way merger and some may argue with the same level of success!). It would also be the year that CC’s Managing Partner at the time, Tony Williams, would step down and go on to found the highly successful Jomati Consulting (probably a wise move in hindsight).

And yet, from the start I was never quiet sure what CC’s strategic aims were in having a Bangkok office.

Were they looking to pick-up a large amount of debt recovery/restructuring work that was going on around town? Possibly, Wirot Poonsuwan had been at the forefront of discussions to changes to Thailand’s insolvency law to allow for US-style Chapter 11 restructurings to occur (Wirot wrote a weekly article in the Bangkok Post at that time [1998]).

Were they looking for the growing amount of divestment work going on? Possibly. Wirot did some of this work, but Simon Makinson and his team did more of it and they would go and join A&O (with whom Simon had a relationship as a trainee lawyer).

Were they looking for the NGO / Infrastructure work? Not really, Linklaters picked up Wilailuk Okanurak – who would go on to succeed Chris King as Managing Partner of the Bangkok office – to run a very successful infrastructure practice (although she does lots of other things).

What they did do was bring in the wonderful Andrew Matthews from Italy (along with his Ferrari if I recall correctly). But his practice at the time was aircraft financing, not the sort of thing you’d have expected to see done from Bangkok: but hey, why not…

My own view at that time then was that CCW’s strategic reasoning for being in Thailand was muddled. In part that was one reason I would leave CCW to join my good friend (and previous colleague at Wirot International) Pichitphon Eammongkolchai at Linklaters (where I would go on to enjoy 7 more years of fantastic times and memories).

Fast forward to 2017

Despite this, and despite the fact that there was some real hitters on the local scene at the time (late 1990s) in Siam Premier (to have a JV with Australia’s Allens – must be something with Allens and JVs!) and Chandler & Thonk-Ek (now part of the Japanese firm Mori Hamada & Matsumoto) to name two, the firm that was CCW would go on to to survive almost two decades.

That’s quiet and achievement in this marketplace.

And while much has changed – Wirot is no loner there, nor is Tim Jefferies; much remains the same – Andrew was there the last time I checked and current Managing partner Fergus Evans was a very junior lawyer back in the day.

So clearly something worked.

And so I will be very sad when I hear the firm has closed its doors for the last time. Particularly so given I believe the strategic decision for doing so is [probably once more] completely wrong.

Moving their ASEAN focus to Singapore is something CC should have done in 1998, not 2018. Having persevered to 2017, it seems short-sighted to close the office so shortly after the establishment of the ASEAN Economic Community (AEC) gives it access to a market of US$2.6 trillion and over 620 million people.

But that’s just my view.

rws_01