As hourly rates continue to rise and economic conditions tighten, innovative sourcing strategies have become essential for corporate legal departments seeking to manage legal spend while maintaining high standards. At a recent focus group for Wolters Kluwer ELM Solutions clients, my colleagues, Angel Hoffman and Amy Choe, and I shared practical insights and strategies for optimizing legal sourcing through requests for proposals (RFPs) and reverse auctions.
When used well, RFPs are more than just a procurement formality; they are highly effective strategic tools that can transform your approach to sourcing outside counsel. Here are a few of the benefits they can yield:
- Fostering competition: RFPs create a competitive environment, prompting law firms to deliver their best proposals in terms of pricing, strategy, and talent. This competition often results in better fee arrangements, including opportunities to explore alternative fee arrangements (AFAs).
- Broadening firm options: RFPs can ensure you don’t limit the legal team to using the same panel firms for every matter. They can uncover firms with niche expertise or innovative solutions that might otherwise go unnoticed.
- Data-driven decisions: RFPs collect structured data on cost, staffing, and proposed strategies, empowering legal teams to make informed, apples-to-apples comparisons when choosing outside counsel.
When to use RFPs
Not every legal engagement requires an RFP. Based on feedback from focus group participants, here are the scenarios where RFPs deliver the greatest value:
- High-cost or high-stakes matters: For critical cases with substantial budgets or significant risks, an RFP ensures the chosen law firm is the best fit in terms of experience, strategy, and value.
- Complex or specialized engagements: Matters like cross-border M&A or intricate regulatory investigations pair well with an RFP, allowing firms to showcase specialized expertise.
- Panel selection or portfolio work: For high-volume yet routine matters (e.g., contract reviews), RFPs help evaluate firms’ cost efficiency without compromising on standards.
- Encouraging AFAs: RFPs facilitate discussions around alternative fee structures, enabling legal teams to secure predictable costs and mutually beneficial arrangements.
Reverse auctions as a complementary tool
Reverse auctions, where firms bid in real time to offer lower fees for specific legal work, are gaining traction as a supplement to RFPs. While these auctions may not suit every matter or firm relationship, they offer tangible benefits for certain use cases, including:
- Real-time cost reduction: Competitive bidding encourages firms to lower fees, providing immediate budget relief.
- Transparent market pricing: Reverse auctions provide valuable benchmark data, helping legal departments understand prevailing market rates for specific matter types.
- Faster decision-making: The live nature of reverse auctions accelerates firm selection, enabling swift decisions on time-sensitive projects.
There are challenges to consider with reverse auctions. Balancing cost and quality is key—while saving money matters, auctions shouldn’t overlook the expertise needed for certain tasks. The pressure to lower fees can also strain long-term relationships with outside counsel, so clear communication is crucial, especially with frequently used firms. Reverse auctions work best for high-volume, predictable work but may not suit complex or specialized matters.
Putting these tools to their best use
During the focus group, we identified several best practices to optimize the use of RFPs and reverse auctions, especially for teams new to these processes:
- Start small and build confidence: Pilot with a well-defined, shorter-term, high-value matter to demonstrate the potential benefits of RFPs. A successful small-scale implementation builds internal trust and appetite for wider adoption.
- Define guidelines for use: Establish criteria for when to use RFPs, such as specific matter types or monetary thresholds. Internal alignment is critical to avoid inconsistent application.
- Define the selection process in advance: Pre-defined templates for fee proposals and staffing plans enable direct comparisons of submissions, reducing decision-making time.
- Be available for feedback to firms: Provide information to firms that did not win the bid about why they were not selected and what they could do to have a better chance of selection next time.
RFPs and reverse auctions, when used strategically, are long-term investments for corporate legal teams. They not only address immediate cost pressures but also create opportunities for innovation, stronger partnerships, and better decision-making. By fostering competition, promoting transparency, and encouraging the use of technology, legal teams can optimize their sourcing practices for both efficiency and value.
Interested in learning more? Download our eBook A guide to using RFPs to source law firms for legal matters.
