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Common RFP for Legal Services Mistakes – Part II of II

This is a continuation of this blog post.

OK…back with more tales from the front.  While sharing some holiday cheer, my friend (and business manager of a large law firm) and I shook our heads at a couple more of the common RFP mistakes that in-house counselors make.  He shared that “the ask” for fixed fees is more common, but fascinatingly, the majority of clients do not ask for a comparison budget at hourly rates.  Another common mis-step is of the garbage-in, garbage out variety.  If one doesn’t provide the firms meaningful assumptions around the expected work, how can one expect meaningful proposals in return?

Fixed Fees Without a Budget

Another frequent practice is for companies to request fixed fee bids for work to be performed without asking for a pro forma budget that would be associated for the engagement if standard hourly rates were being charged.  My friend advises he has almost never seen a client ask for such a pro forma budget when fixed fees are requested.  Instead, they typically just want a roster of individuals who will work on the matter and a one line fee quote.   If all you care about is the total fee proposal, having the budget ultimately may not impact your firm selection in an RFP.  But in our experience more often than not a pro forma budget adds real value and insight to your RFP process.

First, a good pro forma budget tells you not only what individuals are going to work on your engagement, but also their expected time commitment.  This guidepost advises you whether the manner in which the firm expects work to be divided among lawyers of varying degrees of experience appears to make sense. Second, subject to pre-established fee collars or other hedges, a fixed fee engagement represents risk to the law firm because they bear the costs associated with any time overruns.  In turn, it is common for law firms to build buffers into their fixed fee proposals to absorb potential unforseen time sinks – e.g. difficult regulators, unexpected motions, difficult counterparties, unexpected diligence issues, etc.

Having the pro forma budget based on standard hourly rates associated with the fixed fee engagement informs you whether the firm has built a buffer into the offer and whether the buffer appears acceptable.  This serves two nice functions.  First, it may enable you to push for further concessions on pricing on the front end from your preferred provider.  More than once I’ve had this type of conversation and driven better pricing.  “Your fee proposal is better than the competition, but they are demanding a lower risk premium and have staffed the project differently than you.  Your staffing is acceptable to me and I want to work with you.  But unless you adjust the risk premium I will strongly consider asking the competition to reformulate their staffing and give them the work.”

Second, having a detailed budget provides a meaningful road map to revisit as the engagement unfolds if your service provider seeks to renegotiate their fees because of cost overruns.  Sometimes the overruns are legitimate and should be addressed.  However, I’ve encountered law firms who sought to re-negotiate fees for reasons that were not legitimate, such as using the matter to train in younger associates who billed significant time on tasks on which they were never budgeted to work.

Failing to Provide Common Assumptions or Data Points

Many parties who process RFPs do not provide meaningful common assumptions about the expected work associated with their engagement or, if applicable, how data on work flows from past similar engagements may be indicative of the amount of work associated with the proposed engagement.  The absence of such assumptions or data points in an RFP means each law firm participating in the proposal process will draw their own independent assumptions about the proposed engagements.

Naturally, this is prone to cause significant deviation in how each firm constructs their proposal – e.g. perhaps one firm assumes far more due diligence will be required on a transaction than its competitors.  Data points about past engagements that you believe are likely to be indicative of the work associated with the proposed engagement should be provided in the RFP instructions.  Similarly, to the extent you believe common assumptions about the proposed engagement are likely legitimate and meaningful, these should be provided to help remove deviation from proposals.

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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