By Rob Mattern
Published September 2015
When it comes to the business processes that legal organizations should be improving immediately for long term success, back office support and the recovery of those costs tops the list. With the pressure on rates and cost recovery not abating, it is critical that firms develop a strategic plan to decrease and control their support costs and recover them in a fair and transparent manner. This will help firms maintain competitive rates as well as operate more efficiently and profitably.
On the cost recovery front, the firm should develop a firm-wide plan to capture and recover costs that reflect how firms currently practice law. Study after study show that clients will reimburse for legitimate transparent costs associated with the respective matters.
While increasing the recovery of costs may create some angst in firms, everyone should be on board on controlling and decreasing costs if done in an intelligent and strategic manner.
Here are seven reasons to consider in creating a competitive situation for all your back office contracts.
1. Beware the Lure of the Early Renewal.
If a vendor tries to get you to renew prior to your contract expiration, you should take a step back and ask yourself: “If the vendor is offering the best terms, is providing good service and the pricing is competitive, why would it not want me to look at the market or other vendors?”
The answer is exactly what you think: the terms are not the best; the service is not as good as it could; nor is the pricing as competitive as it ought to be. If your vendor was delivering on this triple play, there would be no concerns about you comparing the renewal deal to the marketplace.
Business history proves that optimum deals happen for both parties when an educated, unbiased third party is involved to insure both the buyer and seller are protected: when you rent space, you use a broker; when you buy insurance, you also utilize a broker. In both situations, the third party brings knowledge and expertise to your side of the table, extends that expertise across the table to fairly represent the seller’s pricing and terms, and ultimately ensures a fair transaction is put in place.
When a law firm administrator hires an unbiased, respected consultant to assist with their vendor contracts, that administrator is bringing the same kind of expertise and equanimity to their firms’ other significant expenditures beyond rent and insurance — namely, their outsourcing contracts, offsite records storage contracts, office supplies and more.
2. It Ensures the Best Deal.
Based upon the last 28 outsourcing deals Mattern & Associates has completed in the past 24 months, the firms that selected to go through an open, competitive Request for Proposal (RFP) process saved 21% on average; and in 70% of those contracts negotiated, the firms received financial signing incentives. In projects that did not get competitive proposals, the average savings were 13%, and 25% of those agreements included financial signing incentives.
Tip: If your vendor is willing to give 21% or greater just to renew, that probably means your contract is priced way over market, and the savings will probably be in the 40% range.
3. The Winning Vendor Is Validated As the Best Choice.
Have you ever won a competition where the other party got hurt and could not finish? It is always great to win, but the victory seems hollow. How do you feel after a tough competition from which you prevail as the clear winner? Much better than in the first example. After a well-structured and fair RFP process, you will know the selected vendor is the best choice for your firm and the selected vendor will know it is the best fit for the firm. It’s a great way to start off a relationship for both parties.
4. By Looking At the Market, It Makes You a More Intelligent Consumer.
There is a clothing store in the Philadelphia region that uses the following slogan: “An educated consumer is our best customer.” The point, which is fairly obvious, is that buyers will know they are getting a good deal on clothes because they are knowledgeable about the products. The same applies to all buying decisions. The more you know walking into a transaction, the better decision maker you are, which only benefits your firm and the transaction.
5. It Keeps Your Current Vendors on Their Toes.
In almost every open RFP process, our clients will comment on how much more attention they are getting from their current vendor. They also feel that they have been taken for granted by the very same vendor. It is human nature that one takes certain things for granted. Hopefully, your vendor does not, but intermittent looks at the market, strong reporting and scorecard requirements, periodic review meetings will make sure it doesn’t.
6. Selling and Buying Like a Dinosaur.
The way of selling like the dinosaurs is to sell on price, negative sell against the competition, and be the last man standing in an RFP process. The market has changed, but the way most vendors sell unfortunately hasn’t.
For the intelligent firms, the buying process is different, it is what we call Strategic Expense Management : looking at the total value of the deal; taking into account the cost recovery ramifications and top line revenue opportunities; focusing on terms and future-proofing the contract while creating a process that monitors the performance in a fair and accurate way and drive future savings. Vendors will be much more successful if they focus on delivering on performance and worked willingly with an unbiased consultant as a partner with them in the relationship with the mutual client.
In this day and age, that is what the client and market wants and needs.
7. What Is In the Client’s Best Interest?
The last and most important point is that a consultant keeps the client’s best interest in mind throughout the process. You can easily tell which vendors have this “interest” and which do not. Are they selling you what you need or what they want to sell? Do they stand by what they sell? Do they try to inhibit actions or the use of third parties that may make you more informed and your job easier?
That is not to say that some clients can be unreasonable and a vendor has to protect their interests — that is just good business.
Many vendors say that they will always do what is in the clients’ best interest. If this is truly the case, these vendors would want you to get open competitive pricing when your contract is renewing and use an educated, unbiased consultant to work with you on the process. It may cost them some margin (in the client’s best interest if done intelligently), but it protects their interests, too. The vendors that dissuade clients from using a consultant to assist them in the RFP process and after the contract is signed with the monitoring and maintenance of the agreement are throwing up a red flag.
On the other hand, having a consultant protects the vendor, as well. We had an outsourcing deal in the works for an AmLaw 100 firm that wanted to outsource its in-house operation. It was a long complicated process and a vendor was finally selected. The client, knowing this was a big deal, wanted some extra incentives — although we told it that those incentives would put the vendor in an unprofitable position. The vendor met with the client outside of the negotiations process, after which the client mistakenly informed us that the vendor had finally agreed to the requested incentives. When we went to document the agreement, no one remembered the “incentive” in the same way. The client felt betrayed and pulled the deal from the vendor.
The unbiased third party protects not only the client but also the vendor. The vendor has to trust that the consultant has its best interest at heart and is trying to structure a win-win situation.
Conclusion: How to Increase Your Success at the Win-Win
In order for legal organizations to remain competitive in this market, the business of improving business processes, which includes optimizing back office support and the recovery of those costs, must be a priority.
On decreasing back office support costs, all major categories of expenses should be competitively bid in an intelligent, strategic manner and memorialized in a detailed, future-proof contract with detailed performance standards and a scorecard process. These contracts should be monitored and audited on an ongoing basis, and the selected partner (vendor) should work with the firm to further reduce these expenses.
On the cost recovery front, as mentioned previously, clients will reimburse for legitimate transparent costs associated with the respective matters.
If a firm follows these strategies, it can reduce expenses, recover them more effectively, make a major impact on its financial structure (which insures its long-term success), and have improved relationships and communication with its service providers — the definition of a win-win.
Rob Mattern, a member of this newsletter’s Board of Editors, is President and Founder of Mattern & Associates, LLC. Mattern & Associates assists law firms in developing an unbiased strategic direction for their business processes. For more information on Mattern & Associates, visit matternassoc.com, check out their blog, www.matternoffact.com, or follow them on Twitter @MatternOfFact.Download PDF