Revolutionizing the Procurement of Legal Services

Episode Notes

Transcript

Law Technology Now

Revolutionizing the Procurement of Legal Services

10/12/2017

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Bob Ambrogi: Hello. I am Bob Ambrogi.

Monica Bay: And I am Monica Bay.

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Bob Ambrogi: Here on Law Technology Now.

Monica Bay: Welcome to Law Technology Now. I am Monica Bay. We have a terrific guest today. It’s Silvia Hodges Silverstein. She is Executive Director of Buying Legal Council and adjunct professor at Columbia Law School and Fordham Law School where she teaches law students, Business and Management.

Silvia, how did you get interested in the purchasing side of Legal Services and are you a lawyer?

Silvia Hodges Silverstein: Thank you Monica so much for inviting me to your show. So, I often get asked this question, “Are you really a lawyer or what are you?” So, I have a Master’s Degree in Business and then later I got my PhD from Law School. So, while I actually do have a Law School degree, I would not say, I am a lawyer, but I have been working in this industry since about 2010. I originally worked on the law firm side and tried to help the firm with marketing and management side of legal services. And while I was trying to think about what’s the best way to help a law firm, I thought what I really needed to do is, I needed to understand what it was that clients really wanted. So, I start to research purchasing behavior of clients and that was good 12 years ago and I have been doing it ever since. So, I have — internationally I interviewed in-house lawyers, CEOs, CFOs and around 2010 I discovered legal procurement involved in the sourcing of legal services. I thought, wow, this is interesting. I never spoke with procurements until then and I researched it in detail and found some companies, some pioneers who were doing it. I started to get people together, small round tables, I wrote then a Harvard Business School case study on what GlaxoSmithKline was doing, and yeah, and at some point in time, people asked me to start the Legal Procurement Association Buying Legal Council, which actually today is our third birthday.

Monica Bay: Congratulations.

Silvia Hodges Silverstein: Thank you.

Monica Bay: So, for people who might not be familiar with it, can you describe what procurement is?

Silvia Hodges Silverstein: Sure. So Procurement really is the Department of Purchasing and in recent years what happened was that, top management felt that the purchasing of legal services needed perhaps additional help from the purchasing professional. So, rather than having the legal department doing it by themselves, typically the CEO or CFOs said to the GCs why don’t you work with your Legal Procurement Department. And basically, procurement is all about a flying business-to-business purchasing processes and purchasing tools to the purchasing of legal services.

Monica Bay: Now when you say GC and some of the other acronyms, what are those because some of our audience may not be familiar with this?

Silvia Hodges Silverstein: So, in GCs as in General Counsel, and I mean, as you know, Monica, it is typically the in-house lawyers that buy the legal services and who determine which law firms should help them get rid of certain legal issues, et cetera and so forth, but large corporations these days bring in more-and-more of legal procurement professionals to help support the legal department as I said with the process of identifying the right law firms and then also making sure that the client gets what the law firm promised them, gets 04:57 and at the price that was being discussed. And so, a lot is about the purchasing itself but then also managing the relationships with the law firms.

(00:05:07)

Monica Bay: So, purchasing in this case means how do you hire and bring in the right lawyers? Or is it also, are there ancillary things that are used as well?

Silvia Hodges Silverstein: Yeah, now that’s a good point. So, technically when legal procurement is involved, one of the first steps is that they will locate ancillary legal services, so that might be from depending on the industry; from court reporting to medical records, et cetera and so forth, and so they might look at, so how many corporations are you working with in this area and what are the negotiated rates of the contract. And then, procurement will come up with new purchasing strategies that could be that they say, well, right now we are working with, let’s say, 25 medical records companies, or maybe that doesn’t make such a good sense. So they will then look into what’s the quality of these different companies, what they offering, and then they will go and most likely reduce the number of those providers that the company is working with, and then try to re-negotiate new contract.

Monica Bay: Silvia, what is the Buying Legal Council?

Silvia Hodges Silverstein: So, the Buying Legal Council, Monica, is the Global Trade Association for most professionals that are tasked with sourcing legal services and managing supplier relationships. And we actually just had our third birthday, I am really happy about that.

We have members now, really from around the globe, so procurement professionals from Fortune 500 companies as well as they are European, Asian, Australian, Latin American equivalence.

Basically, what we do like any good trade association, we are all about networking and education. And it is really our goal to make legal procurement professionals better as in more sophisticated buyers of legal services.

So, most of them don’t have a legal background, and as you can imagine, if you are tasked with helping the in-house lawyers system with Buying Legal Services, it’s really important to get all the networking and education help that you can get. So, we do monthly conference calls for our members in legal procurement and really make sure that we make them understand what legal services are all about because for procurement, legal is typically seen as a last frontier, it is very challenging, it is not intimidating category, but since about 2010, we have seen many corporations now embracing procurements and top management telling the legal department, you should work with your colleagues from procurement to help you buy the legal services and actually 08:10 free you from some of the tasks that you might not even like doing such as rate negotiation, I mean, who really likes to talk about price?

So, what we see a lot is that procurement takes on like the bad cop position whereas the in-house counsel can still remain the good cop.

Monica Bay: What about legal operations? How is that different than legal procurement?

Silvia Hodges Silverstein: That’s a very good question, Monica, I am happy you bring it up. So, a lot of people kind of confused legal ops and legal procurement, but they are two very distinctly different things. There is some overlap, but let me explain it.

So, legal operations is responsible for managing the legal department. Most legal operations professionals are in the legal department itself and report directly to the General Counsel, and many of them, I wouldn’t say all, but many of them actually have a law degree.

In procurement on the other hand, legal procurement focuses on the buying of legal services, and as I mentioned managing the business side of the relationships with law firms and other legal services providers, but they typically do not have a law degree. So, they have a business degree, an accounting degree, a finance degree.

So buying and negotiations, that’s their forte and that’s their focus, they don’t look at how the legal department is run, not at all, just this one aspect. And they are almost always, based in the procurement department, do not report to the General Counsel but instead they report to the Chief Procurement Officer. So that’s the big difference, so it’s different types of people with actually a different focus.

Monica Bay: Why do companies involve legal procurement professionals?

(00:10:01)

Silvia Hodges Silverstein: Well, I mean, as you know, it’s a relatively new phenomenon and in most corporations, legal services used to be completely exempt from, say the cost scrutiny that a lot of 10:14 business units and functions have been facing for years, but the 2008 economic crisis was sort of a catalyst and really sped up the process for the adoption of legal procurement. There was a lot of publicity about billing practices, big ticket spending, we have way more and more transparency than we ever had before.

And as you are aware there is profit pressure on the client’s side and that’s all at the root of this shift towards bringing more business approach to the purchasing of legal services. And the first companies who involve procurement in the selection of legal service provider were those with significant legal spend, I am talking companies with not tens but hundreds of millions of dollars of global spend on legal and outside counsel. And the first attempt we saw in the early to mid-2000s, but then companies particularly in the pharmaceutical areas as well as the big financial services institutions as well as energy companies and other utilities, they were the ones who from about 2009, 2010, 2011 started to bring in procurement.

And now, it’s pretty much companies from any kind of industry across all the different areas, and really across the globe who are bringing in procurement to assist the in-house legal department with the purchasing of legal services.

Monica Bay: So, how do the General Counsel come to the point where they are calling for folks like you?

Silvia Hodges Silverstein: Well, so let’s say the in-house legal department is not always really that excited about procurement, at least at first to be part of the pros. It’s very uncommon for the General Counsel to actually ask for procurement’s help. But in more-and-more companies it’s not really their choice whether are not to work with procurement, it is a top management mandate. So, it is the CEO or the CFOs that bring in procurement.

So why does the Chief Financial Officers or Chief Executive Officers, why do they want to bring in procurement? Is typically the desire to manage cost and reduce supplier spend in legal because they just felt like the in-house counsel was not able to do it in such a way that was sufficient. They also want to ensure that the company buys the services in compliance with all the company policies, which doesn’t always necessarily happen. They want to make sure that the company gets the services from reputable suppliers, and the desire to achieve more objective comparison of legal service providers through actually measuring and benchmarking outside counsel value and it is really about increased predictability and transparency.

And all these areas, Monica, they fall into procurement’s core competency and are examples of where procurement can make a value-added contribution for the employers.

Monica Bay: We are running out of time, so I am going to ask another quick question. How does legal procurement measuring and comparing? How is that handled and what advice would you give to folks who are looking for those services?

Silvia Hodges Silverstein: So, procurement really has a big toolbox, and what they look at, is they will definitely try to understand the spend. So they will look into, for example, per unit costs from hours, pages reviewed, kilobytes, megabytes and so forth, to cycle times. How long does it take for a process to be completed, response time, staffing, ratio, et cetera and so forth. So they will look at a number of different aspects. They will also most likely, at some point in time, conduct post-matter satisfaction surveys. They will compare the assessment of an in-house counsel with the self-assessment of outside counsel. So, they will look at, well, where that goal is achieved? And they will look for discrepancies, so, was there a difference in opinion on how well, for example, the matter was managed by outside counsel versus what the in-house lawyers thought how well it was managed.

(00:15:04)

They will look at where the lawyer is proactive, and then of course they will look at billing. So, did they stay within budget? Did they bill effectively? So, for example, where they are timekeepers who billed say more than a certain number of hours per year or number of hours per week? Did they continuously bill 12 or more hours a day? They will look at how your staff matters. You give them lots of junior 15:33 time or partners do a lot of administrative task. They will also look at billing, block billing et cetera, and so forth.

So there are number of things that they look at, and you ask about how you can get on the good side of procurement or what the client should do? So, it is clear that clients are continuing to reduce the number of law firms that they work with. So, firms working with large companies, they need to understand that unless they get on the panel, it’s really hard to win work from our client. And so then we really need to make sure that to not to take for granted, the clients that they have will do everything to keep the ones that they have. So, sit down with them. We try to understand what it is that procurement wants, how they are being measured, and really see it as an opportunity to build new relationships.

So the businesspeople on the law firm side should absolutely reach out to the businesspeople on the client side for the procurement folks and build new relationships and make sure that this change is really an opportunity for them. So, in short, it’s time to really respond now and to make sure that you are able to deliver services in an efficient and effective way at a good price.

Monica Bay: Silvia, thank you so much for coming on Law Technology Now. I think you had a lot of great information for our listeners and how could our listeners reach you if they would like to connect with you?

Silvia Hodges Silverstein: Thank you so much, Monica, for having me on this show. I greatly enjoyed it and I look forward to connecting with your listeners. So, whether you are in the client side or on the law firm side, I’d love to hear from you. You can reach me at [email protected], but you can also check out our website at  HYPERLINK “http://www.buyinglegal.com” www.buyinglegal.com. Thank you so very much.

Monica Bay: Silvia, thank you again, and before we stop, I want to do a shout out to Law Technology Now colleague Robert Ambrogi who has won the Yankee Quail Award for Journalism, presented by the Academy of New England Journalists; very well-deserved.

If you liked what you heard today, please rate us in Apple Podcast. We will see you next time on another adventure with Law Technology Now.

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