Firms may pride themselves on good client relationships – but they’re also eyeing off what seems to be a trend towards the tendering out of legal work. “In FY2009 we undertook more [tenders] than we did in any previous year – we went through over 150 panel tenders and proposals,” said Clayton Utz’s chief executive partner, David Fagan. The majority were for existing clients and the level of unrecorded activity may have been higher.  “It took a lot of resources to put the [proposals] together as they can be very time consuming – it’s great if you win the tender, not so great if you don’t,” Fagan said. 

Gilbert + Tobin managing partner Danny Gilbert has also seen this pattern. “There is a general trend towards more tendering and those kinds of procurement models. But I think the very best general counsels would look for value outside the procurement model, as it tends to follow a very rigid line and doesn’t always recognise the value of someone who is well informed about the market. Procurement doesn’t always get that right.”

While it is inevitable that there is some link between the financial crisis and the increased prevalence of tendering, Fagan believes that the trend is permanent. “It’s here to stay and not just a feature of the GFC. It’s part of clients seeking greater value and competitive tension in pricing.”

However, the alternative theory is that these trends are cyclical. “If you look at what happened in the UK in the mid-1990s, there was a trend towards tendering which fell away because the firm that won the tender didn’t always perform satisfactorily,” said one source. “So the client might have saved a million on costs, but lost five million because the law firm blundered.”

In-house perspective

Putting work or panel positions out to tender is often simply part of a company’s business culture. One example is Woodside Energy, where vice president of legal, Michael Abbott, said that the energy group has a broad commitment to using the tender process. “That is our process which we use for engaging services, whether we’re building a liquid-natural-gas plant or engaging a law firm. Competitive tender seems to be the fairest way to get people to put their best foot forward and show us what they can do.”

Woodside is currently revising its Australian panel. “The process will be that we’ll tender for people to go on the panel,” said Abbott. “The legal team will have the freedom to instruct the panel firms, but if they want to go outside the panel they will need to refer that back to myself.” Abbott says that tendering seems to be becoming more prevalent. “From what I can gather from conferences and from speaking to other lawyers, that seems to be the trend,” he said.

But general counsels remain mindful of the potential shortcomings of a tender process. “You can always get a cheaper cost somewhere else, there’s always a firm that’s going to be hungrier and willing to discount margins to get you in the door – but I’m looking at the longer term, so I haven’t consciously said: let’s got out to tender,” said Tim Wong, who is the group general counsel Asia Pacific for George Weston Foods.

Wong noted the value of proven, successful existing relationship. Still, he keeps a close eye on costs and makes sure that his main advisors do not become complacent.

Internal pressures

Having survived the financial crisis largely without the wholesale redundancies which have occurred in past downturns, in-house lawyers can take some comfort from the enhanced respect which the profession seems to be enjoying. This does not, however, diminish the pressure on in-house legal teams to prove their value to their organisation – and to retain the ability to make autonomous decisions about spending.

A body of thought exists to the effect that the best people to make legal spend decisions are not lawyers but procurement experts, who specialise in the buying of good and services. The premise is that lawyers are less able to make objective decisions about value; due to the relationships they have built with firms and the desire to retain a particular lawyer or firm out of loyalty.

“Under the [procurement] model, the presumption is that lawyers are very good at doing the legal work, but instead of general counsel negotiating the buying of legal services, this should be done in conjunction with procurement experts, who have experience negotiating the buying of all sorts of goods and services,” explained Weston’s Wong.

He is not sure how widespread this model is, but says that it poses an additional incentive for general counsel to demonstrate that they have a handle on costs. “You’ve got procurement people lurking in the wings and it’s implicit that if you don’t handle [expenses] yourself, experts can be brought in to help you,” he says.

The compromise position could well be the increased use of tenders, which send a clear message not only to firms but also to internal stakeholders that efficiency and value for money are paramount. “Tendering demonstrates that you’re challenging the status quo,” he said. “Even the threat of tender sends the message that you’re serious about costs and the incumbent shouldn’t be complacent.”

Tendering for SMEs

Smaller companies have traditionally not put legal work out to tender but this is starting to change, with the advent of internet-based services which link law firms with those offering legal work. Emily Peterson, director of the online legal referral service Legal Tender Australia, says that her business is most often used by companies which do not have in-house legal teams and previously did not have the opportunity to use a tender system.

These companies often already have legal representation, but are shopping around because they are unhappy with the service they are receiving. “SMEs are frequently briefing firms on a transactional basis,” Peterson said. “They want a better deal.” Not to say that relationships are unimportant – companies will often return to the same firm when more work arises.

Most firms submitting proposals on Legal Tender provide a cost estimate, and about a third will offer a fixed fee basis. But the tenders that win are often not the cheapest. “SMEs are becoming more sophisticated and are most interested in relevant experience,” said Peterson. “The effort that law firms put into responses is important. Firms should address the specific requirements of the clients and give examples.”