Finally a topic where your Sourcing colleagues and the in-house counsels agree: the need for panels of preferred law firms.
There are many benefits of having law firm panels and they are a great and uncontroversial starting point for any outside counsel management function.
I’ll cover the benefits of panels and how to maximize their value with an example. Because panels are so common and they’ve been around for such a long time, there is a risk of doing them on ‘auto pilot’. Panels should work for the organization they are being used in in order to create value.
This article is about how to make sure your panels cover the relevant practice area for your company. Next time I’ll cover regional panels and how to create law firm support coverage in the countries your company works in.
Follow the money
Unless you are aiming for a complete overhaul of how your organization works with law firms, the easiest way to decide where practice area panels make sense, is to follow the money.
The main lever for saving on external legal fees when creating a panel, is the expectation of the invited firms that a steady stream of work will come their way in the next three years or so. Of course there is no guarantee that the work will come. But it is a justified expectation and dangling that carrot in front of a firm is what makes them offer the discounted rates, the volume discounts and if you play your cards right, they may throw in a few free secondees.
This is where it becomes important to know where you spend your money in detail.
Example
I’ll use an imaginary internationally operating company with USD 150m in spend annually that is looking to start working with panels. Now on the face of it, that seems like a nice amount of spend to divide between 6 firms on a law firm panel annually. The invited firms, looking at the possibility of winning USD 25m in revenue each year, will for sure try to give you your best offer.
However, after having looked at the spend more closely, you find that the spend is roughly cut three ways.
About USD 98m (65%) of the external legal fees in the last two years, was related to US disputes. The majority was spent with the four firms that are dealing with the largest litigations. The rest went to related eDiscovery costs and expert witnesses. These costs were passed on to the organization by the firms.
About USD 26m (18%) spend was used to get advice on rather technical Intellectual Property questions related to the products the company sells globally. These matters are dealt with by firms that specialize in that topic. These firms also support the negotiations about the customer contracts.
Another USD 26m is spread across a multitude of topics (M&A, employment, real estate, data privacy, trade compliance etc.). These tend to pop up in several markets where the company does business. For this work a mix of international firms and ‘local champions’ are being used.
There are different ways of structuring the practice area panels in this scenario but I would approach it as follows:
- Propose to run an RfP to create a US litigation / disputes panel. The four incumbent firms are invited but also some firms you would like to give a try so the incumbent firms know future work is at stake. When discussing the list of firms to include in the RfP , make sure to propose a mix of Tier 1 and Tier 2 firms. No need to take to bring out the Rolls-Royce for every occasion. Sometimes the Volkswagen will do just as fine a job at a considerably lower price. Having the option to shift between Tier 1 and Tier 2 firms within you US litigation / disputes panel will create additional competitive tension.
- Propose to run an RfP to create a panel of specialist firms that support the business with their technical IP questions and contract negotiations. There are likely to be fewer firms to choose from so the competitive pressure may be less. It is still worth the effort because it will signal to these firms that they are preferred by your company. This can work in your favor when a competitor is trying to engage them next time.
- With the two biggest buckets of spend addressed, I would have a look at the mixed bucket as well. If the M&A spend is consistent, it is great to have a panel in place for that type of work. Structured pricing is the norm in M&A but if you don’t have a panel, you need to negotiate the structured pricing on a matter-by-matter basis for which there is often no time. Having the most important terms agreed up-front in the panel RfP, will allow you to have a firm on your M&A deal within 24 hours with structured pricing already in place.
- Finally, but out of scope for this article, it always makes sense to address the eDiscovery and expert witnesses costs.
What about having one panel for all practice areas?
Some organizations will have consistent need for legal advice that is sufficiently generic and can be handled by any firm of a certain size and capability. For those companies, a global panel with a small number of firms dealing with everything, is the perfect solution.
For the company in the example above, I’m not so sure. More than two thirds of the spend is– and should be – with US litigation and IP specialist firms. If you then take out the M&A spend of the remainder, there may not be enough left to create a global panel that makes sense for the firms involved. They won’t be getting the meaty US litigation work, they won’t be able to support the technical IP questions and they won’t be getting the M&A deals.
Of course you could enforce that, going forward, all work needs to be done by the global panel firms. The question is how realistic that is. Ultimately the firm that is selected, needs to be the one that is most suited to deal with the specific issue at hand. Better to have those firms available to you on your practice area panel and ready to go when needed.
Next up: Regional panels and country coverage