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7.28.20: Council of Luminaries CLIENT-SIDE

The LVN Council of Luminaries is comprised of veteran thought leaders and pioneers in the business of law community. The objective behind assembling this group is to establish a brain trust of recognized, experienced and progressive leaders who can help interpret developments in the market, provide advice on how to successfully approach and navigate challenges, predict future trends and changes to prepare for, and to participate in targeted special projects to benefit the legal industry as a whole.

The below meeting was conducted primarily with the client-side group.

Pandemic Catch Up

Luminary 1 – We’ve had some staffing changes as a result of the downturn. One thing that’s been interesting is that we do a check point each quarter but this is the first time we did one where the clients were telling us that they miss certain law dept personnel. They are starting to feel it.

Luminary 2 – We have not had to reduce our legal staff, but we can’t grow. A few receivables that were budgeted for have had to be eliminated. We haven’t seen a degradation in service. In fact we’ve heard the opposite, but if we have one major uptick in business without adding to staff – that can turn on a dime.

Luminary 1 – It’s mostly accelerated retirements, so it’s more senior folks who had relationships with the business for a long time. And they sat with the business. So now it’s younger people who don’t understand the business as well…and it’s virtual.

Luminary 3 – We’ve also had accelerated retirements. We’ve seen a good bit of that as we’ve hit the downturn and it has already impacted profitability

Alternative Fee Arrangements

One of the issues that came up on the law firm luminaries call last week was on AFAs, specifically that very often clients lob undefined "just suggest an AFA" requests, and what they get back is apples and oranges. The law firm Luminaries suggest coming up with a process and better parameters so firms can be on the same page. Noting that there are a number of different types of AFA which do different things (align incentives, reduce costs, improve predictability) is there room for clients to at least share their objectives in requesting an AFA?

Luminary 3 – There needs to be a conversation at the beginning. If the AFA is requested within this practice area or that type of work, we need to provide some data so the firm can come back with something based in reality. If we are approaching 2-3 firms with the ask, need to share what we know so they can come up with something useful.

Luminary 2 – I get that it could be extremely frustrating. And I’m guilty as charged on putting that request out there. But I’ll defend myself that I do that with firms where we have a strong relationship, and it’s not brand-new pieces of work. I would be surprised if the firm would say they don’t understand the scope.

But very recently we got a budget from a firm on work that’s not fully defined. My main goal – which I did state – is that we want to make sure our business clients have some transparency and reasonable expectation on what the costs are going to be. It’s not so much about saving money as much as expectation setting from a budget standpoint. So, I kicked it back and they responded but I got sticker shock from the business – and asked if there’s an AFA. Maybe I needed to carve out some of the scope to get them started. They struggled; said they didn’t know how to build the AFA. They came back with a couple different options – one was a flat fee for part of the work, and also additional volume discounts. I told them I want to know where we stand monthly on the estimate, because our business clients are cost sensitive on this particular project. I appreciate that it needs to be a partnership, but I don’t think it’s an unreasonable request to ask them to be creative on pricing their services for us.

A Deep Look at RFPs

Luminary 4 – I have a question on whether the question was really about the competition. If it’s a 1-1 process, we can get in the weeds sometimes. When it’s an RFP that goes to multiple firms, we try to talk about what is the work, what are the patterns, what is the timing – we want to give them a sense of the pressures we’re facing from the business we are supporting – to allow them to put forth an AFA to deal with what we are experiencing. In an RFP, unless we know what fee type we want – it’s a bit of a coemption criteria. We want to see how they will execute on an AFA.

Luminary 1 – I remember when my wife and I looking for a financial advisor. The one we landed on was able to identify our expectations. They gave us a questionnaire. Then they suggested what they’d offer. Can firms develop a questionnaire that helps to elicit the kind of information they need to put together an accurate, on-point proposal? Cost certainty might be a higher value. Or a true budgetary cost savings might be a goal. I think that’s done informally right now and it creates a constant back and forth, and no one is too clear on what a “win” is.

We set a goal for more than 50% value-based billing. We got to 65%. It was pretty interesting how our firms responded. I will say we offered them a structured task-based budget template to fill out. That facilitated the discussion.

Luminary 5 – We’ve formalized our panel. For a solid 8 years or so, we didn’t really have a formal preferred panel, but it was always the same firms we were inviting to RFPs. So when we formalized it, we didn’t run a big RFP, because we basically had the firms we wanted already. Over the years our firms have gotten zeroed in and then they understand generally pricewise what they are up against. I’d say the best thing we’ve done in our program is from the jump our GC has required the lead attorney to have substantive feedback calls for unselected firms to help firms understand where the gaps were between their proposal and the firm that won the RFP. Some of our lawyers hate those calls, because at this point the proposals are so close. They’re often splitting hairs when they make a selection, so there’s not always something to tell these people, other than “You were all great. It came down to this minor differentiation point.” It makes diversity and value adds come to the surface. If 3 firms all have great attorneys, on-point experience, similar fees, etc., – you have to differentiate somehow. The feedback process also separated the firms, some would get the feedback calls, be told why they were unsuccessful, then they do the same things in the next RFP. Other firms have taken the feedback seriously, and now have a bigger footprint with us.

Luminary 4 – I wonder if it’s coming from people who are new to a process. We see the way-out-there proposal when we invite a new firm in. The RFPs have become so close to one another – we often have to give feedback that “this one was just slightly better.” You have to tell them “you just didn’t win the day.” But the conversations have become harder and harder.

Luminary 5 – I’ve had to give some pep talks, but core firms are getting more opportunities because we are considering fewer firms. You just can’t win every time. We don’t specifically award work based on who has how much of our business currently, it sort of evens out naturally. Firms respond and adjust based on feedback. We can see who really wants to work for us vs. those that will just pitch for anything they can get their hands on. The ones that want our work pitch diverse teams, fair price, etc., right off the bat. We also scorecard in-matter and after matters to get that gap analysis. “You pitched a team that looked really good...where are they?”

Luminary 6 – Do firms overestimate their expected winning percentage?

Luminary 4 – Yes. For sure. We have doubled down on getting bids and quotes for all our work above a certain threshold. I will say there has a been a growing sentiment at firms that, if they don’t have to go through the bidding process, they feel like they have a better chance. But within the process, there’s real sensitivity if they are not selected, they say, “If I did everything right, I don’t understand why I didn’t get picked.”

When it’s a new firm, I do try to have a call with them before. I tell them that even if they don’t get picked, they’re getting to put their people in front of our people, so it could be a good marketing opportunity. This mitigates the idea that they are just asked in to have some firm for perspective without really having a chance to win. They do have expectation that they should win every one they go in for.

Luminary 5 – Among the firms that we invite, each has about a 25% success rate. Our process is blinded. But Luminary 4’s right about the marketing value. It is still a difficult pill to swallow for some though because all lawyers think they are the best lawyer ever created! We have worked hard to maintain the integrity of our process though. Firms know that, if they lose, they are losing to a quality firm. Plus, our firms know it’s not a price race. We only select the lowest cost about 40% of the time.

Luminary 1 – Are we talking about bidding on a matter or portfolio basis?

Luminary 4 – We ask for bids on a matter basis mostly now.

Luminary 1 – Do you lose something by having so many different firms on different matters. For example, institutional knowledge. We feel that better for our employment portfolio to be run by fewer firms. We also get better value adds, such as education and training. But the process is harder to do on a matter by matter basis. You might save on cost matter by matter, but spend more on portfolio management, plus time spent by the law department to onboard.

Luminary 4 – We are doing matter by matter as a means to an end – eventually we will move to portfolio. It’s mostly firms we’ve been dealing with. It is rare we’ll invite a new firm off the street.

Luminary 7 – Oftentimes, when law firms are asking about win rates, they are asking how they can expand the relationship. Even if looking at some of the RFP tools - the question firms always ask is what RFPs did you send out that we didn’t even get? They want to know how they can build the relationship to get more opportunities even if that means having to develop more proposals that may not be successful.

Luminary 6 – Are there repercussions for firms that decline to participate on certain RFPs?

Luminary 4 – It’s rare that firms decline, but there are no repercussions. We also try to be upfront if there is a budget constraint. So, they decline sometimes if they know they can’t make that budget. We actually appreciate it.

Luminary 5 – Same. If they don’t have capacity, we appreciate them letting us know and bowing out. It’s a positive. It’s gotten a bit more common; but there had been years and years when no one would decline to participate. We do respect though when a firm has the courage to tell us ‘our A-Team is maxed out and we don’t want to pitch the B-Squad to a valued client’.

Luminary 2 - It happens rarely, I do appreciate it when it happens.

Luminary 1 – if it was a dumb reason, maybe I wouldn’t appreciate it, but if it’s in both our best interests, it makes sense.

Luminary 2 – I have had firms that decline because we won’t agree to their advance waiver, and there are repercussions. I personally find that offensive and relationship suicide.

This blog post about ALSPs vs. law firms claims that "It takes savings of at least 24% to get an executive to even entertain switching providers." Can we try to quantify the savings it would take to consider a switch from traditional law firm services to ALSP for the same work? What about non-traditional law firm services (Captive ALSPs, etc.) vs. ALSPs?

Luminary 7 – It’s the insurance policy that comes from the brand. There’s a risk in making a decision out of the norm and hiring an unproven firm. We saw it in the early days of e-discovery.

Luminary 5 – That’s incredibly spot on. If you hire the law firm that’s done well for us in the past, and things go poorly, you’re fine. But if you do something creative and it goes bad – no one’s going to care if you saved 24% on fees. That is the biggest impediment.

Luminary 8 – There’s a total cost component. If someone comes and says they can save 24% - but there are costs associated with making that change. So, part of it is that the savings are illusory if you don’t back out the change cost. If you have to inject someone new, it won’t be nearly full savings.

Luminary 1 – It’s better if you can make an argument as to why you’d change. If we could move low risk/high volume work to an ALSP, and there’s a 24% savings, and we could use that to keep headcount in the dept, I’d do it. That argument carries weight with us.

Luminary 6 - Is 24% too low?

Luminary 7 – it certainly varies depending on the work

Luminary 4 – The premise of this post – the cost savings is just one piece. What strikes me is this notion is the client service aspect – you’re going to have to run up more cost to get the right level of service. That’s really the whole thing. We have ALSPs that help us in some areas, but it’s usually work we wouldn’t send to a law firm. As we look more into legal services, I don’t know about the cost number, for me it’s more about the value adds and what I’d get from the other provider. Can I quantify with regard to how we use our workforce to make them more effective? I don’t just compare the firm to the ALSP, it’s more about the whole picture.

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