Are law firm panels and panel convergence the final answer for outside counsel management?
Legal panels are a great concept, but they have some problems. We interviewed 13 attorneys and business development representatives from premier risk institutions across the country to get their opinions on expectations vs. results from ”panels” and “panel convergence.” We’ll take you through the origin and definition of the panel and panel convergence, what our correspondents’ said about them and a potential solution to some of their fundamental problems. Feel free to dip in and out of sections you’re interested in (we’re flexible).
PANEL AND PANEL CONSOLIDATION: Definition and Origin
A company’s outside legal counsel “panel” refers to the collection of firms which the company retains to handle its various legal matters that are designated not to be handled by the company’s in-house team. Each panel firm’s head partner sits at a metaphorical round table headed by the company’s General Counsel. Sometimes, panels can get too crowded. “Panel convergence” is a consolidation process that involves cutting the number of firms on a given panel. This process can take numbers from the hundreds down to the single digits. A typical panel convergence process usually begins with a large RFP in which as many as 200 firms could participate; and clients will ask firms to answer dozens of questions about their teams, experience and hourly rates.
Part of the reason that General Counsels elect panels and optionally undergo panel convergence is for the prospective savings benefits. These prospective savings benefits are borrowed from a concept in the supply chain world; a concept that dictates that buying products/services in bulk from a smaller number of suppliers result in volume discounts.
After studying Japanese automakers in the 1970s, American Engineer William Edwards Deming wrote the popular 14-Point philosophy in 1982, which taught that one should limit suppliers, and ideally use one supplier for each item. Demings reasoned that one should create bulk orders from said suppliers because bulk orders increase production speed and clear sitting inventory, allowing savings to be passed to buyers (these are “volume discounts”).
This concept can be applied to the legal industry; and it was, in the form of legal panels in the 1990s. With these new panels, clients would limit their ‘suppliers’ of legal services (i.e., firms) with the expectation that their ‘bulk orders’ from said suppliers would result in savings. And later in 2011, Pfizer implemented a notoriously aggressive panel program which continued to popularize the practice. The program brought strong financial savings success, but had some detrimental effects (see ACC’s article about Pfizer and this blog post about Pfizer’s panel).
The past several decades have seen mixed results from panels; so people have begun to ask, does this supply-chain-concept of economies-of-scale actually apply to legal services? How much or how well does it apply?
HOW WELL DO LAW FIRM PANELS WORK?
A recent study by CLOC concluded that “law firm panels were an era of great dissatisfaction for some external lawyers, although for others they worked extremely well.” It seems that the promise of panels can only be achieved through the effective management of said panels, determining the best path forward in light of the company’s unique legal portfolio.
Law firm panel convergence helps to narrow the list of panels for effective management, but it doesn’t complete the job. The end result of a typical law firm panel convergence process usually leads to a successful reduction of firms, less administrative cost associated with a large number of firms and a closer and more effective set of relationships; but the discounts provided don’t usually lead to the savings the client expected. Among reasons, the number of firms reduced isn’t significant enough to make a marked difference, and/or firms that aren’t chosen to be on-panel are chosen for work anyway. Here’s what our 13 anonymized correspondents had to say:
CORRESPONDENTS’ COMMENTS ABOUT LAW FIRM PANEL RFPs
“Law firm panel RFPs are a relationship building exercise,” but only when at the right size.
When the number of firms on a panel is limited, then panels become a tool for relationship building. But with a large, less-limited panel (sometimes with 50, 100, or 200 + firms), the relationship building elements are lost. Work becomes diluted among higher numbers of firms. When everyone is on your panel, no one is.
The Takeaway: keep your panel small enough so you can know who’s actually on it.
“A Law firm panel RFP is no promise that you’ll actually get any work,” especially if there’s a habit of off-panel selection.
Sometimes, corporations may select firms for a panel but fail to utilize these firms, which effectively violates unwritten expectations. RFPs become futile exercises when work goes to firms outside of the panel. When panel firms are not utilized, the administrative benefits, cost benefits and relationship benefits are nullified.
The Takeaway: Once you have your (converged) panel, be sure to use it. Avoid routinely selecting firms off-panel, since it means you’re potentially damaging relationships or violating unwritten expectations with your panel firms.
In sum, while law firm panel convergence RFPs help reduce burdens associated with an extremely large panel, they don’t lead to significant savings from firms. Why? Firms are aware of the aforementioned issues regarding excessive panel number and off-panel work, so they don’t ‘play ball’ in the expectation that they slash rates (i.e., “volume discounts”). Firms cannot guarantee discounts in exchange for uncertain business growth from panel participation. In other words, the supplier cannot discount because the volume of demand (and thus return once the supplier meets the demand) is not guaranteed.
A POTENTIAL SOLUTION
For clients focused on discounts, matter-level RFPs may be a solution. Matter-level RFPs are different from large panel RFPs. With matter-level RFPs, a client can ask a firm for fixed fees throughout the year, as different matters arise. They can do this through a “matter-level bidding process,” which distributes RFPs per matter – which differs from one large panel RFP at the beginning of a new, long-term period.
How does this yield discounts? Matter-level RFPs determine firms from a panel (myth buster: they do NOT eliminate the panel) that are a precise fit for a given matter, which guarantees work for a firm.
A large panel RFP guarantees only the possibility of future matters given to a firm— which does not guarantee return for a given panel firm; matter-level RFPs guarantee actual matters as they arise in real time — and thus guaranteed return for a firm. Now that the work is guaranteed with matter-level RFPs, a firm can provide a significant discount. For more on matter-level RFPs, see our other post.
A law firm panel convergence process serves a meaningful role in relationship-building, but not in hourly rate discounts. Panel reductions may not be significant and panel membership may be completely ignored; so firms cannot guarantee discounts in return. Matter-Level RFPs may serve as a solution to these issues.
Questions? Email David.Falstein@PERSUIT.com.