The concept of companies streamlining the number of law firms they hire is not a new one. Over the past decade, in-house legal teams have sought to reduce legal spend, improve service and develop closer relationships with outside counsel through such means as panel reviews and convergence strategies. However, the trend has grown due to the length of the economic downturn, which has pushed many general counsels to more seriously consider the strategy:
“[We’ve] selected advisers who appreciate the challenges we face. We need lawyers who have the necessary industry expertise to handle the large, complex projects and initiatives we have at TfL but, at the same time, have a pragmatic approach to enable effective delivery. Across TfL, we have to manage our costs ever-more cautiously and the legal directorate has a big part to play in that, so we need to ensure that the external firms we work with meet our expectations to maximise the value they deliver.” – Andrea Clarke, Director of Legal, Transport for London
Over the past few weeks, the UK legal market has seen an up-tick in this activity – six major UK and European operations have announced or completed panel reviews over a three week period, according to The Lawyer. All of the companies involved have looked to reduce the number of legal advisers they hire, as well as reduce overall legal spend:
- October 23: The Royal Bank of Scotland (RBS) announced that it has reduced panel appointments in its Group and UK Legal panels with a 36% reduction in the number of firms utilized on its panels;
- October 29: General Electric announced plans to review its European panels, which cover a broad range of work across all business areas, including GE Capital;
- October 30: Transport for London concluded its panel review which saw the public sector organization reduce its legal panel to 11 firms;
- November 2: following a protracted panel review process, Lloyds Banking Group significantly reduced its roster of outside counsel on its 8 sub-panels covering the bank’s own-account work;
- November 7: UK construction giant, Balfour Beatty announced plans to begin a panel review with the aim of reducing legal spend by 30%;
- November 8: UK house-builder, Taylor Wimpey, announced a reduced roster of legal advisers from 13 to just 6.
The RBS panel review is among the most radical revamp. The bank, which is now majority government-owned following its bail-out in 2009, overhauled its review process, reduced the number of sub-panels from 13 to 5, and reduced the number of law firms on panels from c. 100 to less than 60. Strengthening relationships with fewer key advisers was one goal, as was collaborating with external advisers during the redesign process to improve the functionality of the panels:
“As we had so many firms to manage and are such a large user of legal services we wanted to do something intelligent to improve the overall relationship with our law firms…We didn’t want it to seem as if the relationship didn’t matter, so we asked firms to help us to design key components of our panels. Some colour and texture around the deconstruction aspect of the panel was achieved by asking firms what they thought we could do in order to work more efficiently,” – John Collins, Deputy General Counsel
Another key focus was on the use of alternative providers:
“After taking into account law firms’ views, we decided to focus our more complex own-account work toward a select group of firms and then drive behavioural change so that matters such as management of large due diligence exercises and document production work can be handled by alternative service providers who have both scale and enhanced project management capacity” – Rushad Abadan, Corporate M&A General Counsel
While some firms may be resistant to collaborating with alternative providers, RBS was optimistic that the wider market is moving in the direction of such changes:
“Law firms understand what we’re proposing and we’ve started to see moves in the market but firms are yet to get fully on board and embrace it. We wanted to create structural solutions that will help educate firms so they recognise how the market is maturing. The legal profession isn’t immune from process re-engineering: it needs to flex and keep changing and law firms need to embrace that change if they are to remain competitive.” – John Collins, Deputy General Counsel
The Scottish bank was not the only company to place outsourcing of low-end legal work as an important focus of panel reviews. Balfour Beatty also announced plans to increase outsourcing of work such as repetitive employment, construction and property contracts. The company has plans to package and tender this work out to the lowest bidder, whether an LPO provider or a law firm.
As corporates strive to gain greater control and predictability over their legal spends, the preference towards formal panels, reduction in the number of panel firms, and stronger endorsement of collaborations between firms and alternative service providers is only going to grow.
Posted by Tricia Pelton