New research suggests that law firm panels are losing popularity to matter-level hiring (Buying Legal Council, 2020). What can we do to improve legal panels?
Law firm panels (legal panels) have long been selected and used by clients to manage the engagement of outside counsel. By using a consolidated panel, the idea is that both parties (the client and the panel of selected firms) get added value : the consolidated arrangement provides the firm added revenue, discounted rates for the client and improved work product—resulting from the firm having a better understanding of how the client operates.
However, clients have begun to use panels as a cost-cutting tool without actually consolidating firms. As a result, ‘true’ panels (e.g. a small number of firms handling the bulk of the work) are losing popularity.
Panels are still valuable; but without a fair, efficient and transparent process to select and manage these law firms, clients miss the opportunity to capitalize on their bargaining power and firms miss the opportunity to achieve maximum ROI.
We can improve panels by focusing on a few key factors:
1) Value alignment
A panel can be a great opportunity to align firm selection with the corporation’s core values and key initiatives. By treating panel firms as strategic advisors, GCs gain more value than they would by simply engaging hundreds of firms at arm’s length.
To accomplish this, client GCs must fairly assess all firms by establishing a scoring criteria that captures all relevant values . This is best done by building a “Scorecard,” or a clear summary page of all relevant values that can be applied to each firm (see our article on scorecards here.)
To create an effective scorecard, clients must establish relevant values (e.g., short-run turn-around times, responsiveness, team diversity, etc.) and weigh them according to respective importance (sometimes per matter).
2) Risk-sharing via AFAs
When establishing panels and working to strategically reduce spend, clients should consider risk-sharing opportunities via pre-set Alternative Fee Arrangements (AFAs). Usually AFAs are done at the matter level but sometimes there are opportunities to bundle work categories and agree to pre-set fee amounts that would later apply when an actual matter arises. AFAs are not mutually exclusive from panels, and can be used to each party’s advantage in panels. A panel review process shouldn’t try to obtain pre-set AFAs for litigation matters because they should be evaluated on a matter-by-matter basis. But for matter types with smaller, more predictable tasks (patent prosecution, immigration, etc,) clients should seek out AFAs as part of the panel RFP process. Task-based fees can work well in these practice areas and can be set out and applied for all matters handled over a period of years. AFAs can range from basic capped fees to fixed pricing at the activity level. (See our article on AFAs and AFA types here.)
3) Transparency is key
When building a panel, consider price transparency and work allocation transparency. Price transparency refers to the visibility of competitors’ prices; work allocation transparency refers to the visibility of the client’s volume of available projects for assignment (per year). These transparencies offer a firm the ability to compare and strategize, resulting in market-competitive and fair rates.
3a) Why focus on price and work allocation transparency?
Price transparency is scarce in the legal market. Law firms rarely see where they are positioned next to competitors, both when placing a tender and/or once accepted on a panel. And once accepted onto a panel, work allocation transparency is scarce . Law firms often don’t know how big the ‘work pie’ is and how big of a slice they’re getting, relative to other panelists.
As a result, law firms cannot evaluate the true value of panel participation and cannot provide heavily discounted rates during pre-selection . Providing transparency to firms by allowing them to see where they’re positioned (price-wise and volume-wise) enables firms to provide their best offers—and it gives the GC the means to understand and improve panel effectiveness.
4) Data-driven Panel Management
Data should be used in all panel selection, management and review decisions - for both parties. Data is the key to execution; it is also crucial to measuring value alignment, risk sharing and transparency levels.
Data is available for capture at every step of the process, but it is often left decentralized and underutilized. Thus, according to Buying Legal Council 2020, the single most important goal for legal procurement in 2020 is to better capture and analyze data.
Corporate legal teams should be able to address the following questions with data-driven answers:
- How many matters fall within the panel jurisdiction?
- Providing this data back to firms can lead to better rates, since firms will have a better understanding of their potential volume share.
- Which firms are consistently providing market driven prices?
- Clients can reward panel firms that provide continued discounts to earn more case assignments.
- To which firms are we allocating the most matters and why?
- Clients can identify where the process may not be leading to fair opportunities for their panel.
- Which firms are missing out on opportunities and why?
- With this data, a client can provide an objective means for all panel firms to compete for new business.
- How much spend is in scope of the panel?
- This will help give firms a quantifiable revenue opportunity for consideration and calculation of discounts.
- How are law firms performing against the scoring criteria?
- Performance evaluation should be ongoing to ensure that the panel is held accountable after earning panel selection. Firms appreciate the feedback and can provide better service with actionable performance data.
The easiest way for clients to harness all relevant data is by ensuring that the systems clients use to select and manage panel law firms are integrated with matter management and e-billing platforms, each with customized reporting features.