It used to be that companies selected outside counsel based on things like relationships, reputation, and tickets to sporting events/fancy dinners. Those days are fading fast, especially beginning around 2008 and the resulting aftermath of the “Great Recession.” That’s not to say that the above are no longer important (who doesn’t like front row NBA tickets?), but more and more the selection of outside counsel is based on the same principles and processes the company uses generally to select any vendor. This includes the use of RFPs (Requests for Proposals) to search out and find the best firm for the problem at hand. Like many things involving the business part of the law, in-house lawyers aren’t particularly good at this process – for now. I remember utilizing the RFP process while in-house on a number of occasions. We were okay at it, but not great. We got better over time as we learned a lot of lessons during the process – especially from dealing with the results of our process (which is a big clue that we did not always get a gold star for our efforts). Regardless, more in-house departments are starting to use the RFP process – either on their own initiative or because they were “persuaded” to by senior management or other circumstances. If you do it right, the RFP process can deliver tremendous value to the legal department and the company. This edition of “Ten Things” walks you through how to run a legal services RFP process the right way:
1. What is an RFP? For our purposes, an RFP is a process whereby an in-house legal department requests a number of outside law firms to submit proposals to obtain legal work from the company. The proposals are in writing, usually following/completing a template sent by the in-house team. In my experience, legal departments send out RFPs for three different types of situations. Each situation operates somewhat differently from the others mostly due to timing issues. The three are:
- Panel counsel – here, the in-house department is looking to create a panel of preferred law firms that can handle most, if not all, of the company’s outside legal work (including for specific types of matters or in specific geographies). The RFP process here is generally longer and more involved post-selection because there is likely no particularly urgent matter involved and, once selected, panel counsel will be on the panel for several years and deeply integrated with the in-house team.
- Specific project – in-house lawyers sometimes use an RFP for just one matter, e.g., a piece of litigation, a merger, or other project. They may go only to firms on their existing panel or that they’ve used before, or they might open it up to new firms. This process tends to move faster, especially if the matter is urgent and there is a need to get outside counsel identified and moving quickly.
- Specialty area – this one is somewhat of a hybrid of the first two. In-house counsel is looking for a firm to handle certain types of matters, ones that may require the law firm to have a special industry or regulatory knowledge – knowledge that isn’t commonly found at most firms. Examples include tax law, competition law, ERISA, and so forth. The process can move quickly or slowly depending on the circumstances.
2. What does it look like? Your RFP paperwork can take on a number of different forms. The most typical is a Word document or Excel spreadsheet (though the former can be cumbersome if you have a lot of firms responding and you’re comparing responses). Some in-house departments are using portals that counsel can sign into or special software that not only formats the RFP document but collates the responses into a report for comparison that can save a lot of time if there are more than a few firms involved. Whether such software makes sense depends on how often, big, and detailed your RFP process is. Additionally, there is generally an introduction that lays out the goals or issues at stake. Remember, the more detail you can provide the better the responses you will get. For example, if it is an RFP for IP services, set out how many trademarks, patent, and copyrights you have, in what countries, and how many of each you expect (on average) to file each year. Likewise, provide some background about the company and the industry it competes in (if relevant). If it’s an RFP for a specific piece of litigation, provide the complaint along with any other information or summaries you may already have prepared. Providing such detail is the only way to get useful answers from outside counsel. Include page and word limits as, otherwise, you may end up with a firm sending you 200 pages of information the vast majority of which I can guarantee is marketing bullshit and useless.
3. Who to invite. This can be one of the more difficult tasks in the RFP process. If, for example, you’re just looking to reduce the number of firms you already use – but not looking to add new ones – then you send it to all your current firms. If you’re looking for a panel they might include new firms, then you need to identify other firms. If it’s a specific matter or area of expertise, you may need to identify only a few firms with those capabilities. The important part is to ensure you have enough firms involved to make the process work, i.e., generate quality proposals that give you value and a real choice in firms. You may need to ask around for recommendations from your team or other in-house lawyers (even outside counsel) on who to invite to bid. This can be a great way to identify firms you may not be familiar with. You can also do some research online to figure out who are the right players (though this is likely to get you only the bigger firms or those with better marketing so be careful). And, you should look for smaller, regional/different geography firms or boutique law firms to add to your list as they can provide tremendous value with the same (or better) level of quality.
4. Questions to include. The heart of any RFP is the questions that you ask outside counsel to respond to. The first challenge is to limit the number of questions so you are not overwhelmed with information and you’re not wasting the time of outside counsel. The second is to prepare questions that get useful information vs. generic marketing blabber. I think there are four core questions you need to ask (though the number can vary depending on the type of RFP and your timing):
- Experience of the team. You want to know the experience of the team that will actually be working on your matters. The firm may have tons of experience, but if those people work in a different country or won’t touch your project then it doesn’t matter. And you want to know their experience with matters of the type set out in the RFP and, if applicable, for similar sized companies in similar industries. Tell the bidders not to provide copies of the lawyers’ firm bios. Those can run pages and pages and contain very little information that matters. Ask for a two paragraph summary of why they are right for the team and what they bring to the table.
- Legal strategy. You want to know their legal strategy for handling your matter or matters. This matters a bit more when the RFP is for a specific matter vs. a panel, but their general philosophy, creative ways they have handled similar issues, track record, etc. all matter. Plus, and no secret here, you will get a lot of insight that you can use in your case regardless of which firm you ultimately pick. The important thing is to ask specific questions that require detailed, lawyer prepared answers such as questions about the team’s record with the judge or success before the regulatory body questioning your deal.
- Staffing strategy. This matters a lot less in a fixed-fee proposal but in a billable hour situation, it matters a lot. In addition to experience, you want to know why the people on the team were selected and what they will be doing, what happens if more people are needed (do you get a veto?), and will the firm be using contract lawyers or alternative service providers to perform any part of the work. How will the firm ensure that partners aren’t doing work that associates or – God forbid – paralegals or clerical staff should be doing? In blended-rate deals, you want to be sure you’re not stuck with people who are put on your matter because they don’t have enough to do or whether work will be shoved down to less expensive associates who may not really have the experience to be efficient or properly handle the work. In short, are you getting the “A-Team” for your matter?
- Project management strategy. Another item that matters less for fixed-fee proposals (unless the firm is one that will come back and ask to redo the deal because the project is bigger than they anticipated). You want to know how they manage legal projects, how often do they provide updates, status and strategy calls, how are lawyers brought on or off, how do they track important dates, how do they manage documents and depositions, and a dozen other things that come with any legal project. Ask for specific examples of what they do and reports they prepare. In a billable-hour project, you need to know how they manage the budget and estimates, especially how they stay on track.
5. Customer service. This one gets forgotten sometimes but how the law firm will treat you and your team is a very important part of establishing and maintaining a relationship between in-house and outside counsel. The RFP process is a great way to get to lay the groundwork simply by asking a few key questions. These questions work better when the RFP is for panel counsel or specialty area, but some work even when deadlines are tight so don’t feel bad about including them:
- Who will be the relationship manager? This is the person you will deal with most often, especially if there are problems or concerns. What is their background, how comfortable are you with them and their “bedside” manner? Can you get references for other clients for whom this individual was the relationship manager?
- What technology will you use to reduce my costs/do my work more efficiently? Lots of law firms talk about technology (especially artificial intelligence) but can they put their money where their mouth is when it comes to your specific matter(s)? Can I and my team have access to any of it? Ask them to detail how they use technology on your behalf, what technology they use, and for samples or examples of how they use it.
- What is your data security program? How will they keep your data safe and confidential? Do they comply with any particular data security standards, are they certified or have they been audited? This is almost table stakes for law firms today so go ahead and ask them to lay out how they handle it.
- How will you learn my business? Any law firm that wants to develop a real long-term relationship will offer free hours to get up to speed on your business, the industry, and the specific matter. A law firm that understands your business is 3x better than a law firm that doesn’t.
- How will you handle conflicts? This is often a problem for the bigger firms who may represent a large number of clients some of whom may be in the same industry, an adjacent industry where that client may or may not like your company, or an arch-competitor. The RFP process is the time to figure out how conflicts will be handled – in particular, what happens if a big client asks the firm to not represent your company in a matter simply because they don’t like your company or the position the company wants to take. It’s not true conflict under the ethical rules, but it’s definitely going to be a problem. Find out now if you’re a top dog or if you’ll be fired.
- Diversity. For some in-house departments, this is a core requirement. For others, not so much. Regardless of where you fall, the RFP process is the perfect time to ask for (or demand) positions around diversity at the firm and on your matter(s).
- What do I get for free? You may not word it exactly like that but the gist should be clear, especially for panel or specialty area RFPs – if you make the cut what can the firm offer us to sweeten the pot? This can take on many forms with the most common being:
- Free hours every month to use for phone call/short general advice issues.
- Free CLEs and training for the department (and the business if needed).
- Access to firm resources (online library, forms, Lexis/Westlaw/Practical Law, checklists, templates, AI, etc.)
- Industry/Developments presentations to the business or the department (law firms often have a lot of specialized knowledge about the industry your company operates in or developments in the law or with regulations, etc. Making that available to you at no cost is a real value add).
6. Price. And here is the Golden Fleece of the RFP process – price. In the end, this is really what it’s all about, i.e., how can I get high-quality services at the lowest price? Make no mistake, law firms have been spending a lot of money and effort to sharpen up their side of the equation. And rightfully so as they are a business and cannot take on projects that lose money. This means, however, you need to be on your game as well. Most important is to have data about your legal spend over the past several years and data about what’s “market” for your type of matter or for your geography. If you don’t know this, it’s difficult to tell if the price being offered is truly a good deal or not. Here are some things to look for:
- Fixed price. This is typically nirvana for in-house counsel because you get certainty around cost. To make this work you should expect to provide a lot of information to the bidding firms so they can correctly price the project. And ask what happens if the law firm guesses wrong? The worst phone call in the world to get when you think you have a fixed price is the relationship partner calling you to try to redo the fixed price. My philosophy has always been “There’s no crying in baseball” meaning I relied on you to price it and if you made a mistake you have a very hard sell to get me to change my mind (in addition to never trusting you again).
- Blended rates. These sound great in theory, but be careful that you understand how the project will be staffed and how much work will be pushed down to lower cost attorneys who may not have the experience to do a good job (or do it efficiently). These are very difficult to manage in my opinion and there needs to be a lot of guardrails to make sure you don’t get the short end of the stick.
- Discounted rates. Another thing you have to watch closely. You want discounts from the regular rates of the people working on your matter and not some firm average or rack rates that no one pays. It is difficult to see the value in a rate discount unless you have data on your average hourly spend in the past and market data on what hourly rates others are paying. If you are going this route try to get a rate freeze on rates for the duration of the project – or at least for several years or until the next panel review. Then have a cap on how much rates could increase in that next go around. And watch out for the problem of lawyers who advance through the firm’s pricing tiers, e.g., you may have a young lawyer at a discount off $400 an hour but next year she becomes a senior associate and her standard rate jumps to $550. Is her rate still the discounted $400 or a discount off the $550?
Ultimately, getting to the final number and the certainty/safeguards you need will occur face-to-face before the firm is officially engaged. But, the RFP will give you a lot of insight into who has the flexibility to do the work at the best price.
7. Legal procurement. Last year, I wrote about the growing use of legal procurement professionals in the selection of – and negotiation with – outside counsel. I think it’s the next big thing for in-house lawyers. Click here to read that post. If there was ever a time to get professionals involved, the RFP process is it. Not only can they handle the mundane chores around creating the RFP and collating the responses, but they will also have data and the experience to use in the negotiations. And the good news is that the legal department will have the final say in who gets hired, only the decision will be made with the help of real data points and on the best value.
8. Timing. One thing I remember about some of the RFP processes I worked on is that we vastly underestimated the amount of time it would take to complete the process. There are two forces at play here. The first is to ensure you give the law firms sufficient time to complete the RFP. The second is leaving yourself enough time to evaluate the RFP responses, down-select to the firms you are most interested in, conduct interviews, and then make your selection(s). This is usually not a one-week process. Unless there is an emergency/urgency (see below), you should plan on giving the law firms at least three to four weeks to complete their responses. You should also be sensitive to making RFP responses due around a holiday, e.g., Thanksgiving, Christmas, etc. as that stinks for everyone – including you. Leave yourself and the team helping you plenty of time to review and decide (but expect the date to slip when the really urgent matters that bust your calendar show up as they inevitably will). Sometimes you have an emergency like a new bet the company lawsuit or a merger/acquisition where you really cannot wait four weeks to hear back from firms. When faced with this you have three choices a) ask only firms you have used in the past to participate (thus saving time and questions – especially if you already have panel counsel), b) streamline your questions to the bone (e.g., ditch the customer service questions) and just ask the firms you are interested in to power through your timing. The latter also means a lot more work and a very compressed time frame for you and your team. But, sometimes that’s the hand you get dealt; or c) just use who you always use and try to strike the best deal you think you can make with them.
9. Picking the winner. Assuming you have the time, the ideal process flows like this:
- Gather the responses and compile the information into a format that allows you to compare the firms in a head-to-head manner. If firms ignored your instructions or gave you a lot of marketing gibberish, strongly consider cutting them out right then and there because it means trouble ahead in my experience.
- Set up one-hour interviews with the firms you are most interested in, likely no more than three (unless it’s a huge panel counsel effort). This is where you get to look them in the eye, ask hard questions about their responses, and get to brass tacks about price. Doing the interviews in person is by far the best method. Video a distant second. And by phone bringing up the rear – more of a last resort. Be sure that the review team is part of every interview so everyone involved in making the decision sees each firm.
- Make the decision, usually at a meeting of the internal team where you have asked everyone to rank their favorites and why. If you are the general counsel, consider going last because – intentionally or not – if you come out first with “Firm X” as your winner it’s likely your team will quickly fall into line even if they preferred someone else.
- Document your deal like you would any contract. Don’t leave anything you agreed to out because if it’s not in writing it’s not part of the deal when crunch time hits.
- Do the right thing and contact all of the firms you did not select either by a phone call or in an email offering a phone call. The reason for this is they will want to know why they were not selected. And you should be prepared to go through the “why” with them. It may be a simple as “you were 30% more expensive.” It’s expensive and time-consuming for firms to reply to an RFP. If they feel mistreated or that they don’t really have a fair shot at winning, they are not going to play. Your feedback is important to them.
10. Resources. If you are interested in learning more about the legal RFP process, I recommend the following:
- The Buying Legal Council’s Legal Procurement Handbook.
- The Corporate Legal Operations Consortium’s Model RFP (Panel Counsel).
- Practical Law – Request for Proposal (RFP) for Legal Services Template (subscription required).
- The American Lawyer – The RFP Process is Broken. Here’s How it Might Get Fixed.
- RFP Advisory Board – RFPs: Best Practices and Obstacles to Avoid (YouTube video)
- James Stapleton – The RFP Process for Outside Counsel.
- Anne Forkner – The Quest for Better, Smarter RFPs.
- You and your team – ask your network of in-house lawyers if they have advice, forms/templates, and ideas for running an RFP process.
There is obviously a lot here to discuss. But, all in-house legal departments, wherever located, should consider developing a repeatable RFP process and use it as often as possible for selecting outside counsel (panel, specialty, or by matter). You’ll most certainly get better pricing and services if done correctly. Yes, you’ll make mistakes but shrug those off, learn from them, and improve your process for next time. God knows there will be a next time.
June 28, 2019
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Fantastic written Mate!
Thank you! Cheers – Sterling
Your posts are terrific. Could you please add me to your mailing list?
Hi Lanese – thank you for the kind words! Just click on subscribe in the upper right of the blog and you’ll get them as soon as they are posted. And follow me on LinkedIn where I post a lot too. Regards – Sterling