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Common RFP for Legal Services Mistakes – Part I of II

One of my friends is the business manager for a large law firm. When it comes to RFPs, he’s seen plenty of them.  And I’ve spent time over more than a few beverages swapping war stories with him. I’m often surprised by some of the things he tells me that large, multi-national companies do when processing their RFPs. With no further introduction, let’s review some lessons to be drawn from my conversations with him.  We’ll do this over two blog posts.

Using Bad or Incomplete Metrics to Measure Proposals

Nothing is a bigger waste of time then running an RFP that selects winners and losers on incomplete or faulty metrics.  My buddy recently shared an illustrative example.

Several years ago a Fortune 500 company was moving to create a list of preferred providers based on the hourly rates they charged.  Their method?  They asked over 100 law firms to submit a list of attorneys and other staff members who would work on their engagements and the hourly rates of these individuals.  They then did nothing more than average these hourly rates.  That would be all well and good if, in fact, they were going to demand all lawyers working on the file bill at this average hourly rate – a true “blended rate” arrangement.  It would also make sense if they had some idea as to the expected distribution of work among the various staff members as this would provide them insight into whether the “blended rate” was indicative of the average hourly fees they’d actually pay.  But they didn’t request any understanding of the expected mix of hours among staff members.

The initial proposal submitted by my friend’s firm had a blended rate that was not competitive enough to make the list of preferred providers.  To redress this issue they simply added a larger number of lesser experienced attorneys and paralegals to their staffing roster of individuals who “might” work on the company’s matters.  This drove down their “blended rate” and landed them on the list of preferred providers.

He told me the firm expected to be asked about expected work distribution before the final selections were made.  But the question never came.  Further, once they started doing work under the rates they’d listed for various staff members there was never any follow up question as to whether the average fee rate charged the company was anywhere close to the “blended rate” on the staffing roster.  The partners who ran the file were free to use whatever staff members they wanted from the roster and to make whatever substitutions they wanted when a staff member on the roster left the firm.

My friend assured me the average rate charged going forward was nowhere close to the “blended rate” from their RFP response.  A simple example illustrates the point.  If five attorneys who each bill $500 an hour are going to do 90% of the work, what difference does it make if there are 10 other attorneys on the staffing roster who bill $250 an hour?  The “blended rate” in such a scenario is $333 an hour.  But the distribution of expected work hours among those 15 staff members translates into an effective rate of $475 an hour – i.e. a 43% premium to the metric used to select the law firm in the first place.  You wouldn’t buy the services of a contractor to work on your home in this manner.  So why would you buy the services of a law firm like this?

Setting No Expectations Regarding Staffing

Example 1 is also indicative of another common problem – failing to establish any staffing expectations regarding your engagement.  My friend has shared many a story of large companies who fail to express any preferences regarding how they want matters to be staffed.  Many people just assume each RFP respondent will seek to have work done in the most efficient, yet effective manner possible.  But if you don’t offer guidance as to your expectations you are prone to get wide ranging results.  Sometimes a firm will assign higher cost attorneys than are necessary to do the work efficiently.  Other times a firm will assign attorneys with less experience than the client later claims it would have preferred.  Either way, the impact on the expected cost of the engagement that might be expressed in the RFP response, not to mention the legal result of the engagement can be significant.

About the author – Dave Sampsell is a 20-year lawyer with extensive experience managing large, complex legal engagements and overall corporate legal budgets.  He presently serves as General Counsel of a NASDAQ-listed company and is a Founder and Director of BanyanRFP.  BanyanRFP saves companies time and money through an easy-to-use, private and secure online application for the creation and processing of legal services RFPs.  For more information, visit www.BanyanRFP.com

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