Pricing and trust: a loveless marriage

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28 March 2013


Posted by Richard Burcher, managing director of Legal Futures Associate Validatum

Pricing is the elephant in the room in the lawyer/client relationship

We are long overdue for lawyers and clients to work together more collaboratively in order to take the relationship to a more grown-up place and away from the current paradigm which is redolent of a couple of snot-nosed pre-schoolers sitting in a day-care sandpit flicking dog poo at one another with their plastic spades.

The solicitor/client relationship can only evolve and develop, like every relationship, if it is founded on mutual trust, courtesy, respect and a desire to broaden the scope, breadth and depth of that relationship. Law firms have a responsibility to initiate these communications, and general counsel and legal departments have an equally compelling responsibility to engage and invest time and effort in them.

It means opening up. It means being candid, transparent and forthright. It means viewing the engagement as a collaboration from which both sides have the potential to benefit rather than a zero-sum game where my gain must be your loss.

Perhaps most importantly, it means being candid, transparent and forthright in relation to the perennial elephant in the room: pricing.

To some, this will look like ‘tree hugging’ and a little bit too ‘touchy-feely’ but before you dismiss these notions out of hand, there is a compelling commercial and business case for this sort of approach.

Historically, clients and lawyers have viewed pricing, the business of agreeing a fee, as fundamentally distasteful, even adversarial in nature; something to be haggled and bargained over, often disingenuously and sometimes with malice. Apportioning blame is unhelpful but I think that most would agree that both sides have played a part in the deterioration of the pricing aspect of the relationship.

Law firm behaviour is often characterised by poor communication, poor pricing documentation, poor price expectation management, poor cost control, lack of imaginative pricing and payment choice and even indifference.

Client behavior is frequently characterised by suspicion, distrust, micro-management of their lawyers, ineptly prepared RFPs, incompetent management of the RFP process, cynical ‘games’, and destructive procurement behavior such as reverse auctions.

However, things are changing, albeit slowly, for the better. In a recent excellent , Alan Day, managing director of London-based supply chain change consultancy State of Flux, noted: “In the current economic climate, where procurement functions are under severe pressure to free up cash, longer-term initiatives such as supplier relationship management (SRM) inevitably slip down the list of priorities…

“In such an environment, it is not surprising that many in procurement have reverted to stereotypical behaviour, such as firing off letters to suppliers demanding 10% price cuts.
“Although such actions are understandable, there are good short-term reasons why we should continue to nurture key supplier relationships and develop the internal capabilities to manage them.”

The article also quoted Martin Christopher, a supply chain academic at Cranfield University, who said: “The opportunities for cost reduction through category management are finite. However, the opportunities for enhancing value are infinite through relationship management; we are only limited by our imagination.

“Improving your own internal SRM capabilities is, of course, only one side of the equation. To maximise the opportunities, you must engage key suppliers, listen to and act upon their ideas, make your organisation easier and more attractive to do business with and, in doing so, develop the trust that is still so often lacking in customer-supplier relationships.”

 

London-headquartered international law firm Eversheds and its major client Tyco are an exemplar of what can be achieved when both parties put down the boxing gloves and look to put in place something that ‘works’ for both parties. In an effort to reduce total legal spend, substantially increase efficiencies around the use of external lawyers and cultivate an environment of collaborative problem-solving, Tyco replaced its 250 strong list of legal advisers with just Eversheds and its allied firms, who handle all Tyco’s day-to-day legal work in over 30 jurisdictions, much of it for a fixed fee.

Colloquially referred to in the UK legal market as a ‘Tyco model’, it draws a lot of its inspiration and concepts from the US du Pont legal model, sharing the characteristics of transparency, pre-approval of pricing structures and levels, a substantial increase in the volume of work undertaken on fixed fee, budgetary certainty, heavy reliance on technology, a cultural and attitudinal change, and a give-and-take attitude when things go wrong rather than holding each other to the letter of the arrangement. The fulcrum of the arrangement is a very high level of mutual trust.

The result has been hugely successful for both parties and once a law firm and a client are deeply embedded with each other, it is in both party’s interests to meet the needs of the other, the reversal of the usual client-law firm relationship.

Law firms can continue to bury their head in the sand and assume that all that is required to prosper is to do good legal work and send out a bill. Procurement can continue to convene inane beauty parades, sit there po-faced, demand an across-the-board 15% reduction and quibble with headline hourly rates. Good luck with that. You will both become increasingly irrelevant as the market matures.

Or, you can make a concerted effort to break with tradition, call time on the posturing, strutting and gamesmanship, and get alongside one another and work out a deal that makes sense for both of you.



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