GC350 Report: How are GCs using external legal providers?

GC350In May 2016, the Law Society launched the inaugural GC350 Report. Sponsored by LexisNexis, the Report surveyed 100 senior decision makers about the legal needs of their businesses. It provides a valuable benchmarking study for the in-house community.

The Report covers a number of key areas such as the influence and profile of legal teams, key challenges, budgets, and the distribution of work. Here, we summarise what the Report reveals about how in-house legal teams are using external providers.

Where is work outsourced to?

The Report found that a large proportion of the volume of work that is outsourced goes to law firms (95%). Despite the growing number of alternative legal services providers, general counsel still prefer the quality and assurance of law firms and the relationships they’ve built with them.

Larger organisations and legal departments tend to make more use of alternative providers but Legal Service Outsourcing providers (LSOs), Legal Process Outsourcing providers (LPOs) and Business Process Outsourcing providers (BPOs) make up only a small percentage of the volume of external work being outsourced.

The challenge for general counsel is how to drive more value from external providers given their high cost compared to internal resource – negotiating pricing models is central to this.

Fee arrangements

Hourly rates are the most commonly used arrangement (68%) when working with external providers. A large proportion of those surveyed (83%) say that the rates they use are discounted, particularly when working with law firms they already have a strong relationship with.

Whilst hourly rates are most frequently used, the feedback suggests that it’s not the preferred model. 54% of respondents use fixed fees by project and would like to use this model more but are put off by the often tricky process of negotiating and agreeing the fee.

Success/contingency fees and annual fixed fees/retainers are only used by a small proportion of general counsel, with businesses with legal budgets of £5m+ being most likely to use them.

Panels

The Report shows that 41% of respondents prefer to use an informal panel, followed closely by formal panels (33%). 26% say that they have no panel in place at all. Businesses with a turnover of £5bn+ and those with the largest legal budgets and teams are most likely to be using formal panels.

The benefits of using a formal panel identified in the Report include:

  • Increased control over costs
  • Development of strong relationships with external counsel
  • Better understanding of the business by external counsel
  • Greater consistency of quality and service.

Informal panels are seen to offer the same benefits as formal panels but have the advantage of greater flexibility. Those surveyed say this flexibility means businesses can approach specialists for niche work or work in foreign jurisdictions and can negotiate lower prices for commoditised work.

Procurement of legal services

The Report finds a link between the legal team’s profile in the business and whether other departments procure external legal services. Non-legal teams are less likely to procure services where there is a high profile legal team within the business, but are more likely to where the legal team has a medium profile.

Amongst non-legal departments, those most likely to engage directly with external counsel are the Tax, HR and Finance functions. Although the feedback suggests this isn’t problematic, general counsel believe they could add value to the process using their own experience of working with external counsel.

For more detail and insights, the full Report can be downloaded here.

Filed Under: Analysis

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