Legal operations professionals are tasked with optimizing diverse processes and programs across the legal department, some of which may be unfamiliar to them. As their plate fills, legal operations managers naturally look to delegate tasks to partners within their businesses. The legal procurement function is a first-line candidate for that kind of optimization.
What is Legal Procurement?
Legal procurement is a specific subset of procurement that is dedicated to the selection and purchase of legal services from outside vendors. It involves a strategic purchasing process, negotiations, and managing the business side of relationships with law firms and other legal service providers.
Silvia Hodges Silverstein, executive director of Buying Legal Council, breaks it down into two subsets: purchasing and sourcing. Purchasing is a transaction-based function that includes the buying and selling of any services and the making and receiving of payments. Sourcing is the development of supply channels that deliver the best overall value.
The calculation of value marks a departure from the traditional approach to sourcing outside counsel, which was, “we’ve worked with them forever.” Legal procurement professionals conduct a marketplace and supplier analysis, seeking the solution that makes the most business sense, the way one would for any other complex service. As Silverstein says, “you don’t need to be a lawyer to buy legal services.”
If that’s the case, why do so many legal departments and legal operations professionals still manage legal procurement? According to Bloomberg Law’s 2019 Legal Operations & Technology Survey (“The Bloomberg Law Survey”), 32% of corporate respondents said that procurement fell within the scope of responsibility for legal operations at their organization, while 65% said that outside counsel management fell within the same ambit.
Best Use of Talent
The traditional model within most companies was that the legal department hired legal service providers, and the procurement department had discretion over suppliers of commodities. This remained true until the recession of 2008, when companies started putting pressure on the legal department to better manage its spending.
Sterling Miller, former general counsel of Marketo, Inc., Sabre Corporation, and Travelocity.com, welcomes the change. “At Sabre,” he says, “I wanted out of negotiations. I didn’t want to be going out to determine what’s market for legal fees.” Most lawyers, says Miller, don’t want to talk about the dollars they pay outside counsel, they want to talk about the work.
Shifting the work of procurement reduced cost and burden on attorneys. Miller points out that “compliance with operational tasks is something that legal should be begging procurement to take off their plate. Negotiating law firm contract language and pricing is simply not the highest and best use of the in-house legal talent.” In an era where the legal department is being held more strictly accountable for its spend, allowing legal procurement to take on the nuts and bolts of sourcing and buying outside counsel makes a lot of sense. So long as legal has the final say on who is hired.
What About Legal Ops?
Wait! What about legal operations? Isn’t their job to manage the legal department and optimize the delivery of legal services within the organization? Doesn’t that include procurement and vendor management?
Yes and no. Along with litigation support, data governance, records management, and a long list of other responsibilities, legal procurement and vendor management often fall within the purview of legal operations in some organizations. But they don’t have to. Silverstein argues that legal procurement teams are expert negotiators and matter management professionals. They generally have quantitative backgrounds in finance, accounting, or other business-related fields. They are highly qualified to handle legal procurement, and most importantly, according to Silverstein, they are trained to do it in partnership with the legal department.
Legal operations professionals undertake a wide range of operational activity. The Bloomberg Law Survey found that 93% of corporate respondents had a legal operations function, and legal ops professionals had responsibility for project management, innovation, e-discovery management, law department strategy, records management, and many other tasks. This emphasis on oversight appears to indicate that legal operations should not have operational responsibility over legal procurement, but instead should have final decision-making power over legal procurement selections. Silverstein stressed that it is not legal procurement’s task to choose a law firm; their role is to help make and present a good, data-driven decision, but they are not the ultimate decider.
Of course there are obstacles to the success of this collaborative framework. The greatest challenge involves training and retention. Procurement departments experience heavier turnover, and training a new hire in legal procurement only to see them leave a year later is frustrating and uneconomic. “My fear was a legitimate fear, that you invest all this time training them and then they leave you,” Miller said. The reflexive reaction to this is to want the procurement person on the legal team, which has a higher rate of retention.
Silverstein agrees that this is the ultimate obstacle for an efficient legal procurement–legal department partnership. The typical procurement approach is to have people move from one category of work to another, and legal is deemed simply as one of the categories of work. However, data has shown this is not the most effective way to manage legal procurement. Buying Legal Council’s 2019 survey found a 17% savings in companies that use legal procurement. However, if the legal procurement team stays on ten or more years, the savings increase to 23% on average. In short, turnover in legal procurement is not simply an inconvenience to the legal department, but a loss of savings for the company.
Operational coordination between legal procurement and legal operations resources can profitably extend beyond simply hiring outside counsel.
The Bloomberg Law Survey found that 26% of technology procurement and innovation in corporations is handled by legal operations, while 23% said it was handled by procurement. Silverstein argues that legal tech procurement, like the hiring of outside counsel, should be done in partnership between legal procurement and legal operations.
“A lot of legal procurement professionals have sourced IT services in the past, so I’d go so far as to say it would be foolish not to use [those professionals who] source tech solutions for a living.” Especially given that, according to the Bloomberg Law Survey, 93% of corporate respondents said that they sourced legal technologies from out-of-the-box solutions. The vast majority of legal technologies are being purchased, rather than developed within the corporation.
Legal tech procurement should be modeled the same way that hiring outside counsel is, with the procurement professionals sourcing and negotiating the deals, but the ultimate decision resting with legal operations or the legal department. This model for collaboration drives efficiency, and in some cases, cost savings as well.