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Getting the Most From Your External Legal Suppliers

Partnership 19986433 s 146x219With legal department budgets set for further cuts, Helen Edwards outlines some of the ways that public sector bodies can ensure they get more bang for their bucks.

Public sector budgets are under increasing pressure and with austerity measures set to continue with whichever government is elected this May, public sector organisations are increasingly asked to do “more with less”. As organisations prioritise frontline services, there may be a disproportionate reduction in budgets for support services.

High quality legal services must be maintained, and yet budget reductions may increase the need for legal services, through legal challenges to decisions to decrease spending. So how should those responsible for legal services respond? Is it possible to maintain quality with reduced funding?

Public sector Heads of Legal Services have become increasingly adept at making savings in internal expenditure; shaving percentages off budgets each year, keeping vacancies open as long as feasible, restructuring to make larger savings, increasing income through trading, and in some cases, establishing shared services. Increasing internal efficiencies is outside the scope of this article, but suffice it to say that some Heads of Legal have, through necessity, quickly developed skills in this area, being forced by circumstances to make substantial savings.

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However, those hardest hit by cuts say they have reached the point where further cuts would adversely impact on quality. So, where should Heads of Legal look for further savings, when they have maximised internal efficiencies, and yet still have further savings targets to meet?

Taking control

The key to maximising the value of external legal services is control, yet in our experience, many clients struggle to keep control, or even have full visibility, of their expenditure with external legal suppliers, particularly if the budget for that expenditure does not sit entirely with the in-house legal team.

Getting better control of external legal expenditure leads not only to savings, but also to increased satisfaction with the legal provision.

The starting point is to review all aspects of legal services expenditure, both internal and external. Our simple but comprehensive spend review methodology follows 5 key steps:

i.    Information – considering current arrangements and processes;
ii.    Gathering – collating robust qualitative and quantitative data to underpin effective decision making;
iii.    Testing – talking to key stakeholders, including staff and suppliers to ensure any emerging hypothesis’ are grounded in reality;
iv.    Analysis – analysing the information gathered and tested to identify the potential savings;
v.    Presenting – explaining the conclusions to the client, and agreeing how the client wishes to take them forward.

After a thorough spend review, an organisation should understand its legal expenditure, and be better placed to determine an effective procurement strategy.

Procurement strategy

If there is an in-house legal team, the starting point should be to consider the most appropriate mix of internal and external suppliers. Having determined the need for external suppliers, the organisation will need to decide between available procurement options, including:

•    Creating a new framework either alone or with others;
•    Accessing an existing framework;
•    Creating individual contracts with one or more suppliers;
•    Ad hoc arrangements

Each has advantages and disadvantages, and each organisation will need to consider the most appropriate strategy for its needs. A framework arrangement provides a range of suppliers, and creating a new framework allows an organisation to design exactly what it needs, including the requirement for detailed contract administration information.

However the resources involved in creating a new framework may influence some to access an existing framework. A contract with individual suppliers may reduce choice, but encourage a close working relationship and reduce costs based on a higher volume of work to one supplier. So there is no “correct” solution, and each organisation should determine its own strategy, but to do so effectively it needs to fully understand its requirements.

What is important is to approach the task strategically, rather than continuing to use existing suppliers without review, as they may have originally been selected for reasons that no longer suit the organisation’s needs.

Controls and procedures

Procuring a supplier is only a starting point. It will not, in itself, allow an organisation to get the best from its external suppliers. Organisations often set up arrangements that could bring considerable benefits and savings, but then do not maintain sufficient internal controls to reap those benefits. All organisations should implement internal controls, which as a minimum should cover the following issues:

-    is it necessary to instruct externally?
-    which supplier should be chosen?
-    if a panel exists, in what circumstances can off-panel instructions be made?
-    what is the process for instruction, e.g. call-off, mini tender exercise?
-    who has the authority to instruct, and on what conditions?
-    is any additional authority required in some circumstances?
-    what is the extent of the work required, and how are the instructions refined before being issued?
-    what arrangements can be made about costs – fixed or capped fees?

This may appear onerous, particularly in a busy in-house team that is already fully stretched, but it is possible to create a system that works well without imposing unnecessary burdens. The increased efficiency gained from instructing effectively, and receiving the required advice, within an agreed timescale and budget, far outweighs the time spent following internal controls.  That investment of time at the outset can maintain fees at appropriate levels and save time incurred through misunderstandings, incomplete instructions / advice, and fee disputes resulting from lack of clarity at the outset.

Contract administration

Organisations should have access to detailed spend and value information from suppliers, to monitor the success of their procurement strategy. The requirements should be clearly defined and monitored monthly to ensure compliance. This is often a new requirement for suppliers, who may be reluctant to provide it, or the suppliers’ systems may cause practical difficulties. Organisations should enforce their requirements for this information from the outset, as it is critical to ensuring they receive the best from their suppliers. It is all too easy to let this lapse, and discipline is needed from all involved to maintain the provision of accurate and timely information.

If the requirement for detailed spend and value information is not  included in the contract  it is more difficult to require a supplier to produce it, but this is possible, and a lot can be achieved particularly if the supplier is prepared to take a long term view and invest in the relationship.

Public sector organisations may carry out their own contract administration given adequate resources and the discipline to ensure it is done regularly. This can also be carried out by a procurement consultant; the small cost is often far outweighed by the resulting increased efficiencies.

This process should enable organisations to see whether agreed fees and rates are being properly applied, what is being spent, on what type of work, who is being instructed, and by whom, and the overall costs and time spent.

Contract management

In addition to the information obtained through contract administration, organisations need strategic oversight of their legal services expenditure to ensure they are receiving value for money. Contract administration should tell an organisation what it is spending, and with whom, contract management should ensure that there are processes in place for optimising value and quality at the outset, and that the detailed terms of the agreement are being applied. It can also provide an on-going review process to ensure lessons are learned over the life of the agreement.

Good contract management encourages positive relationships with external suppliers, making sure that they remain motivated to provide excellent levels of service, but also understand the organisation and its needs. Contract management should be carried out at a more senior level than contract administration and whoever is responsible should be carrying out a “gatekeeper” role.

This crucial contract management tool provides each party with a practical interpretation of the agreement, setting out their roles and responsibilities to ensure that they are able to operate it effectively.

Legal project management

The strands set out above should lead to greater efficiency and effectiveness. However, there is a further strand that we recommend, which can reap substantial benefits, but is easily overlooked, and that is legal project management. A good project management strategy will have clearly defined objectives and protocols, which are measurable and achievable, to avoid lack of focus, mission creep, delays and budget overruns.

These should be clearly communicated within the context of any constraints. The lifecycle should be clear from the outset, such as when the project will start and finish, key milestones and decision points, and all involved should be able to identify what is required to deliver the objectives.

Legal services are often part of a project board for any major piece of work, but how often are project management principles applied to the legal work itself? In our experience, this is rarely done yet once suggested, organisations quickly see the benefits of applying this approach to instructing external legal suppliers.

Any organisation skilled in project management principles should be able to do so, and for the less experienced, consultants can both carry out this work and up skill internal teams for future projects.

What does an effective legal project management approach look like? It should include:

•    selecting the most suitable provider, possibly by sourcing a new supplier, or a mini-tender between suppliers on a framework;
•    scoping services to be provided, including producing a detailed “road map”, a detailed description of each task, and a timeline showing dates, sequencing and milestones ;
•    identifying resources, including funding and fee earners both internally and externally to work on the project;
•    agreeing and monitoring of costs, for example either a fixed or capped fee and arrangements for dealing with additional or out of scope work, or unforeseen delays; and
•    adapting the scope where necessary.

Ideally this approach should be implemented at the outset, but can also be used effectively in circumstances when expenditure has already started to get out of control.

In one such case, we were asked to assist a local authority involved in a fee dispute with a large City law firm in relation to the outsourcing of one of its services. The firm had been selected following a tender exercise on the basis of estimated fees of c. £135k. More than 12 months later, fees had reached c. £600k with further work required.

It soon became clear that the authority’s internal procurement and contract management skills, processes and controls were inadequate for a project of this complexity resulting in a significant misalignment of expectations with the law firm, unnecessary delays and repeated cost overruns. We were able to negotiate a reduction of over £200k and bring the project to a swift conclusion whilst maintaining the quality of advice given by the law firm.

So, in conclusion, the financial challenge facing public sector Heads of Legal Services should not be under estimated, but using the six strand approach outlined above will enable an organisation to get the most from its external legal suppliers. However, the single most important point is that efficiencies will not happen unless the organisation commits to reviewing its current arrangements and, where necessary, replacing or upgrading them. Despite conflicting demands for time, this has to be a worthwhile investment for any public sector organisation to meet the on-going challenge of maintaining quality with reducing budgets and making sure they get the most from their external legal suppliers.

Helen Edwards is Head of the Public Sector Team at Kennedy Cater.

Kennedy Cater works with a wide range of private and public sector clients, managing an aggregate annual external legal spend in excess of £20million. Services include:

•    Spend & Review Services –detailed analysis and identification of sustainable savings and efficiency opportunities
•    Alternative Business Models – business cases and implementation project management
•    Panel Set Up – EU compliant solicitor and barrister frameworks
•    Panel Management – monitoring, analysis and reporting of monthly fees
•    Insourcing – in house team business cases and implementation project management
•    Contract Management – mini tenders and management of complex and large legal services projects
•    Benchmarking – comparing key costs of service delivery with similar organisations.

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