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Last week, the Wall Street Journal featured an article on the increasing use of reverse auctions by companies to negotiate legal services (subscription required).  A few comments on that topic are worth mentioning.

In the last year, we have managed several projects for Fortune 500 clients that incorporated competitive bidding as a part of the sourcing process and overall cost reduction strategy for legal services.  

Clients want to hire firms they perceive will deliver the best value, which takes into consideration many factors, such as expertise, work quality, reputation, and track record.  The cost of the services to be delivered is only one of those criteria.  Although the spotlight is on using competitive bidding as a negotiation lever, the cost of legal services should be accordingly weighted as one of several criteria to be evaluated. 

Contrary to what many imagine, competitive bidding does not automatically engage a firm.  Additionally, submitting the lowest bid does not guarantee securing a work engagement.  By providing another data point for analysis and negotiation, the competitive bidding process merely automates the manual “beauty contest” – something companies have been doing for years. 

Manually conducted RFPs (usually Excel spreadsheets sent back and forth by email) are considered by both clients and law firms to be cumbersome and tedious.  And because the proposals are submitted in a sealed bid format, they tend to “miss the mark” in terms of creating a truly competitive environment.  Online RFPs and bidding solves that problem by revealing to bidders how their bids compare to the competition (on an anonymous basis) and by giving them multiple opportunities to bid.  The result is a market-determined price, which is almost always the better value.  That’s why online bidding is accelerating.

While there will always be a small percentage of legal work for which price is no object, clients are becoming savvy to the fact that far fewer matters should be placed into that category.  Additionally, today’s legal market is competitive, and differentiating one big firm from another is challenging.   Law firm partners have changed firms during the last decade at unprecedented levels.  Like parity in the NFL, the top talent has dispersed, and there are now many firms with similar capabilities and quality levels.  Consequently, firms that demonstrate commercial flexibility and a commitment to client objectives have the opportunity to stand out in terms of branding.

To borrow from the recent Sprint ad campaign:  “Competition is everything.  Competition is the steady hand at our back, pushing us to faster, better, smarter … Competition is American.  Competition plays fair … Competition is the father of rapid progress and better value.”  Why should legal services remain exempt?