Date:

Panel Bashing

Undeniably, the legal sector continues to be impacted by the global financial crisis as a series of aftershocks follow the initial seismic earthquake. We know the crisis has created a regulatory, merger & acquisition, pricing, technological and client service delivery tension – all of which have yet to completely unravel.

Nowhere is this more obvious than the changing approach from both clients and law firms to panel appointments. As the Client Development Director for DWF, I know our bid team works on almost 300 formal tenders per annum. Fortunately, our conversation ratio is now 70%. My observations and insight on the profession are set out below.  

Panel appointments are often much sought after, and are often reported with considerable zeal or enthusiasm by the legal press. Reducing cost, improving quality of support with fewer advisors, using technology better are the primary aims of any typical panel tender. The Legal Business survey in October corroborated this notion.

Involving general counsel and key leadership elements of ‘in house’ legal teams, hired procurement specialists, the finance department as well as key line management individuals, clients spend considerable time and money determining which law firms are best placed to support their commercial aspirations. Panel tender processes are becoming more complex and time consuming for all parties, and moreover in my time with DWF, we have not worked on a tender situation where the number of appointed panel firms has increased!

As a relative newcomer to the industry - I joined DWF from Ernst & Young in June 2012 - I have been intrigued by the importance placed on panels and how contrasting client dynamics, sector and industry impact on how clients chose law firms. From numerous conversations with general counsel and a review of approximately 400 panels within the past 32 months, it is apparent there are three groups or approaches to panels within the British Isles.

Banks, insurance companies, central and local government bodies, and to some extent, retailers are all prominent exponents of formal panels, frequently utilising the support of either internal or external procurement specialists to run panel tenders. Thirty seven per cent of the four hundred and thirty-six respondents to the Legal Business survey fall into this category.  Hospitality and leisure companies, along with a number of multi-national corporates, and fast growth technology clients seem to favour much more informal panels which rely on specialist local providers to provide value for money, whilst enabling a flexible service delivery method. This group, along with the next would seem to slip into the second group of survey respondents who don’t have a panel and aren’t planning on running one.

Finally, there are a smaller group of privately owned organisations who run an “open house” approach to legal advisers which is not dissimilar to the approach taken on tax and pensions, and broader consultancy advice sought from the Big 4 accountants outside of their appointed auditors with very little interest in creating a more formal relationship beyond specific rate agreements. These findings are consistent with our own insight and trend analysis.

The impact and cost of panel processes, not to mention the macroeconomic conditions in which we operate in, suggest that law firms will have to provide increasing value for money; increasing client service performance through alternative delivery methods and technology platforms; not to mention innovative pricing approaches to create and sustain profitable client relationships.   Clients can take advantage of this ultra-competitive environment - where supply still exceeds demand - by weighting  price over quality of legal advice / delivery, and geographic coverage – thankfully we have only seen rare examples of selection criteria weighted 80% on price alone!

In 2012, there was a sense that finance directors and procurement noticeably pushing price over quality. Economic conditions demanded this - and for banking and insurance they still do so. More recently however, there have been multiple examples of general counsel preventing a formal panel review from taking place. In one instance, we’ve even heard of a general counsel preventing a procurement-led ‘reverse e-procurement exercise’ from occurring as it served little or no purpose in his FTSE 250 sized company.

In the energy and retail sectors, we have seen occasions where general counsel have been allowed to focus on quality of delivery and management information to ensure that they are allowed to choose the most commercial lawyers, with the best sector expertise without the need to run formal penal tenders. Instead they have focused on a partnership approach between internal procurement, in house counsel and the finance division to create a supply function which services client needs effectively.  

What is fundamentally clear from our own insight - and the four hundred plus responses to the survey - is that the in house counsel is changing, and that consolidation in the legal sector along with technological advances and a focus on service provision combined with alternative pricing methodologies give much food for thought. Andrew and I are looking forward to discussing these changes with you further in early March.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.