Buyers can get more value on legal services from smaller firms

24 January 2018

Increased oversight from CFOs and other C-level stakeholders on legal spend is increasing the realisation within in-house legal teams that procurement can deliver value when sourcing legal services.

A survey of 300 general counsels and in-house legal professionals at large multinationals found that two thirds (68%) rely on pre-existing relationships to outsource work in foreign jurisdictions.

The research, conducted by Globality, a firm that matches clients with legal services, found companies outsourcing legal work in countries other than their home markets tended go with larger international legal firms despite the better value proposition offered by smaller local practices. This is because many in-house legal teams lack the resources to find and vet local providers.

“Typically legal spend within large organisations has been seen a little bit as black magic, as long as nothing goes wrong keep spending,” Alex Reynolds, director of Globality, told SM. “That attitude isn’t really out in the market anymore.”

Reynolds said a lot of legal services are outsourced to big international practices but clients would get better value for money by going for smaller, local suppliers. He said: “We’d call it the ‘fat middle’, everything from smaller M&A pieces, litigation, IP, employment law, environmental law, real estate.

“The reason it goes to those larger firms is that it’s just an easier process, it’s the default option, they know those firms, they’re familiar with them. They know in most cases that they’re paying over the odds but they don’t really see an alternative… The process of actually sourcing [a small or medium sized firm] and finding them is actually a difficult one.”

But, as well as lowering costs, smaller legal partners can offer better value for money in terms of responsiveness, innovation and agility. Clients tend to lose visibility over who is handling their cases when an international firm passes it onto their regional offices, said Reynolds. Work is often being given to junior associates or lawyers. This leaves clients paying a premium for the brand but potentially losing out on expertise and quality. 

“With the smaller firms you don’t have those overheads, you don’t have the brand that you’re paying for… They’re a big fish in a small pond and what this means is they get a really good level of service.”

Globality’s answer is to provide a matchmaking service that allows firms to search for potential SME legal partners abroad. In-house legal teams or procurement professionals put in their requirements, and the system suggests some pre-vetted matches, reducing the time it takes to source a legal supplier.

Reynolds also said there was more room for procurement to take part in legal sourcing. Buyers need to show they empathise with the additional risks around sourcing legal services, and demonstrate where their experience can make the process easier.

Legal teams are often uncomfortable about talking money with potential partners, Reynolds added. “It makes them feel like it’s devaluing a little bit that technical aspect.

“Where we’ve seen success in these kinds of partnerships is where the in-house procurement teams have said, ‘You know the legal market better than us in terms of the expertise, what you need, who are the right law firms for you… you take care of that, we will take care of the negotiation around fees, around added value, around leveraging of volume,’” he said.

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