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Legal Service Procurement – Best Practices Dr. Silvia Hodges Silverstein 18 November 2015

Dr. Silvia Hodges Silverstein

Executive Director, Buying Legal Council (www.buyinglegal.com) Faculty:

Fordham Law School - since 2010 Columbia Law School - since 2013

Author, ”Legal Procurement Handbook”, “Buying Legal: Procurement Insights and Practice”; “Winning Legal Business from Medium-Sized Companies”; other books, book chapters, and articles

Author, “I didn’t go to Law School to become a salesperson” (Georgetown Journal of Legal Ethics)

Co-author, Harvard Business School case studies “GlaxoSmithKline” (N9-414-079) “Riverview Law” (N9-414-079)

Education: BS Economics (Bayreuth/Germany) Master’s Degree in Business (Bayreuth/Germany; Warwick University/UK) PhD, Nottingham Law School (UK)

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Agenda

The legal market today The rise of legal procurement Pioneers: GSK’s legal procurement About measuring legal services About pricing of legal services Survey insights from London and Chicago conferences Q&A

The legal market today

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2007 •  Strong seller’s market •  Early trouble indicators emerge

2008 •  Mixed legal market first half of year •  “End of the World” mentality by year end

2009 •  Caution and fear dominate/realization rates collapse •  “Cut our way to profitability” as dominant strategy

2010 •  Return to some stability, but not growth •  Some firms do well; others still in trouble

2011 •  Some demand increase, but growth remains sluggish •  Price pressure from clients

2012 •  Competition continues to be intense •  Record levels of lateral movements

2013 •  Continuing flat legal market •  Continuing price pressure from clients

2014 •  Some areas, such as M&A, see an uptick in work •  Continuing price pressure unless it’s bet-the company work

2015 •  M&A doing well, but most other areas: price pressure •  Record numbers for law firm mergers; largest firm > 7,000 lawyers

Demand for Legal Services

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Demand growth by practice area

Lawyer Productivity (hours per lawyer)

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Lawyer Rates (Rate Progression)

Realization (Billed & Collected Rates)

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Market conditions today

Clients reduce the number of firms that serve them Clients find alternative legal service providers or bring work in-house Creation of small panels to serve clients RFPs and tenders becoming routine Price and budget pressure Legal procurement helps drive the process

The rise of legal procurement

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Foreword for The Legal Procurement Handbook By Tom Sager (former GC of DuPont) “Procurement may still be a four-letter word in the legal industry, but the legal landscape is clearly changing. … it is incumbent upon the general counsel and her outside counsel to apply greater sourcing discipline to our profession to create competitive advantage for her respective corporate clients. “

© Dr. Silvia Hodges Silverstein | silviahodges.com | @silviahodges

Procurement’s corporate mandate §  Streamline operations §  Consolidate costs §  Improve efficiencies §  Measure & benchmark outside counsel’s value §  Find better ways to structure fee arrangements §  Monitor budgeting §  Increase predictability and transparency

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1980s 1990s

2000s

2010s

DuPont Legal Model

Convergence trend

Offshore services centers AFAs ACC Value Challenge

Reverse auctions

Procuring of engineering & architectural services

Procuring of marketing services

Procuring of accounting services

Procuring of legal services

Legal Analytics

Legal Services Act 2007

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Legal procurement’s influence over 90% of legal budget on the rise:

2012 10%

© Dr. Silvia Hodges Silverstein | Legal Procurement Study 2014

2014 25%

© Dr. Silvia Hodges Silverstein | Legal Procurement Study 2012

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Importance of "project management & process improvement

© Dr. Silvia Hodges Silverstein | Legal Procurement Study 2014

©Dr.SilviaHodgesSilverstein|silviahodges.com|@silviahodges

”Closest to the pin” & efficiency

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Pioneers: GSK’s legal procurement

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About measuring legal services

Measuring matters

• Total spend• Average blended rate• Matter cost• Matter duration• Average years experience per partner • Phase length

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Measuring law firms

• Total spend• Satisfaction rating• Volume of active matters• Average blended rate• Matter cost vs. benchmark• Matter duration vs. benchmark • Timekeepers per matter• Average years of experience per partner

Identifying excessive billing

Timekeepers by dollars billed... Over $300,000 per year? Timekeepers by hours billed...–Over 2,080 hrs/year or 40 hrs/week (shift to in- house?)–Or 12+ hrs/day (Overworked?)

Timekeeper billing over 20% of time on weekend and evenings?

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Identifying staffing issues

Junior associates billing more than 10% of hours on a matter?Partner time over 10% on clerical tasks?Junior associates with rates over $300 per hour?Marginal Input (“Drive-by Billing”) over 10% of total hours?

Identifying billing practice issues

Invoice lag over 60 days?Missing billing codes on over 10% of line items?Block billing over 10% on firm level?Block billing over 25% on a timekeeper?

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When will you start sourcing legal services?

Dr. Silvia Hodges Silverstein Twitter: @silviahodges @buyinglegal www.buyinglegal.com New York (15 March): Managing Supplier Relationships London (9 May): Alternative Fee Arrangements