11 May 2012

The tender spot

Beauty parades for corporate legal services are taking off in Denmark. Randi Bach Poulsen describes the background to this development and warns fellow law firm managing partners of potential pitfalls

Randi Bach Poulsen is the managing partner of Danish law firm Bech-Bruun

In-house legal departments and public bodies alike are being forced to scrutinise their legal services budgets and devise ways of obtaining the best value for money. This cost cutting is the primary driver behind one of the fastest-growing trends in the Danish legal market – invitations to tender for the provision of legal services.
Competitive tendering is not a foreign concept to Danish lawyers. Over the past 10 years, law firms have regularly submitted tenders, primarily relating to international mergers and acquisition deals with the decisive criterion being fees — in other words, which law firm could provide the required services at the best price.

Increasing invitations

However, over the past three years, tendering in Denmark has changed significantly. First, the number of invitations has increased considerably. Second, the scope of the legal services subject to the tendering process is more varied. Whereas previously tenders primarily related to a single task, today they also encompass non-transactional based, full legal service packages.
Third, tenders are divided into numerous legal disciplines, for example corporate, competition and employment law, and are awarded to one or more law firms and then shared on a segmented or geographical basis.
Alternatively, tender winners form part of a legal panel.
This trend has been evident in the UK and US markets for many years. But it has only recently taken root in Denmark and is likely to become even more prominent with the implementation in June 2014 of the proposed EU directive on public procurement, which has been expanded to include legal services.
Although the threshold value for services is expected to remain at its current level (€125,000 or €193,000, depending on the type of purchaser), public bodies have shown a tendency to use competitive tendering to procure services, even though they are not obliged to do so. By comparison, private entities have employed competitive tendering to procure legal services for many years and even medium-sized businesses are now following this trend.
Previously, the tendering process was relatively straightforward and manageable, and primarily focused on a simple fee structure. Today, tender documentation is lengthy and complicated, encompassing numerous legal disciplines and requiring bidding firms to provide detailed information of the cases on which they have advised.

Fee models

The majority of fee models requested in tender documentation are still relatively unsophisticated. The hourly rate remains paramount, notwithstanding the scope of services being extremely variable.
But apart from the lawyer’s hourly rate, some services – often of a more administrative character – may be subject to fixed fees. Likely future alternative fee model trends are blended fees, partnering models and risk sharing models.
Tender documentation frequently requires bidding firms to provide details of a wide range of additional services provided without charge, often including hotlines through which procurers can call the tender winner firms with uncomplicated legal questions. Other popular services include access to the tender winner’s library, knowledge sharing, free seminar participation and key account services.
It is also becoming increasingly common to require bidding firms to solve case studies; and bidding firms can be required to provide efficiency models. Moreover, they are sometimes required to set out guidelines for potential collaboration between the procurer and the bidding firm.

Time consuming

The competitive tendering process has become significantly more burdensome and time consuming. That means law firms have to determine which tender processes they wish to participate in, as participation in all may be unwise.
They should be aware that fee expectations may differ in various practice areas, as may the scope of services. To make the tendering process as efficient as possible, marketing, communication and legal staff will have to be involved
in its preparation. Deadlines are often short – to deliver a high-quality bid, standard documents need to be in place.
Preparation of high-quality templates is a must. However, law firms should also be aware that many procurement models are highly individual and resources to make the bid equally as individual must be available. The complicated and burdensome nature of tender documentation frequently necessitates the approval of tender applications by law firm’s management committees prior to submission, creating additional administrative burdens.
Law firms need to assess to what extent they will have to establish large, specialised and efficient tender departments to meet this increase in competitive tendering and most importantly what effect it will have on revenue.

Randi Bach Poulsen is the managing partner of Danish law firm Bech-Bruun