RFPs and Procurement: Trends & Reverse Auctions
A recent article in Canadian Lawyer on request for proposals (RFPs) it discussed the role of companies and their RFP process. As the number of companies sending out RFPs for their panel law firms increases it is critical for law firms to win RFPs now or be out of the running for additional work until the companies decide to undertake another round of RFPs which may take years.
I host seminars on “How Procurement Impacts Law Firm Selection” and the pace at which the legal procurement professionals are upping their game is startling. The sophistication of the software programs used by many procurement specialists is not only a factor at the proposal-decision stage, but it’s also used to measure the performance of firms after they have been selected. At a recent seminar I moderated, three out of the four panelists were going out for panel law firms. All of the panelists were looking for good pricing — but not at the cost of quality. From there, the needs varied from company to company, depending upon their individual requirements.
Trends in RFPs
Through these seminars, I’ve been able to identify several trends regarding how clients see RFPs, including:
- Using legal procurement specialists to draft more sophisticated RFPs;
- Hiring external consultants to evaluate RFP responses;
- Issuing RFPs to create legal services panels to consolidate the number of law firms they use;
- Specifying the kind of appropriate alternative fee arrangements that they want, e.g. capped fees;
- Submitting global RFPs for all services or just one legal service;
- Itemizing preferred value-add services, e.g. CLE courses and off-the-clock advice;
- Digging deep to evaluate a firm’s operations;
- Selecting a law firm based on the diversity of the teams presented in their proposal;
- Rating firms on their collaborative software; and
- Implementing reverse auctions once your firm has been selected as a panel firm.
I think the most daunting trend is the reverse auction. Some companies started using reverse auctions for legal services as early as 2010 and continue to use them almost exclusively for any legal work that is valued in excess of a pre-determined dollar amount. Companies typically use third-party software to conduct the live online auctions, but they handle the process internally.
Reverse Auctions Explained
Reverse auctions are gaining traction with clients. The typical reverse auction includes the following steps:
- A company will issue an RFP;
- Law firms respond;
- A short list of firms (or panel firms) is invited to participate in the reverse auction;
- The laws firms are invited to submit estimates for the project;
- All competing firms can see the pricing of the competitors but not the name of the competition;
- The competing firms can lower their bids while a timer counts down; and
- The company then assesses the bids and announces the winner of the work.
When preparing for online reverse auctions I always recommend to my law firm clients that they do their pricing in advance and know their bottom line and stay within it. Otherwise, it can insight a gambling type fever and all common (and financial) sense can go out the window. Many law firms who have mastered reverse actions actually like the process as it gives them an opportunity in true transparency to bid on work.
All said and done, sophisticated procurement-led RFPs are on the increase and firms are being closely scrutinized on how they respond. And it’s a trend that is not going away anytime soon.