In-House Counsel And Innovation: The Benefits To Outsourcing Routine Work At “Reverse Auctions”

It’s a breath of fresh air when companies don’t require some sort of catalyst or cosmic shove to spark innovative thinking in the workplace.

One such company, FMC Technologies Inc., has been on the cutting edge of legal services for more than a decade, and only now are other economically-propelled and financially-strapped companies following suit.

An oil-and-gas-equipment supplier for the energy industry, FMC Technologies uses a type of online “reverse auction” to seek legal counsel on various maters. Reverse auctions allow law firms to bid a certain amount for advertised legal services, and then keep bidding in competition with one other to offer the lowest price possible.

“Every lawyer will tell you that every piece of work they do is incredibly important and risky and has to be custom-made, and that’s just nonsense,” said FMC Technologies general counsel Jeff Carr to the Wall Street Journal. “No matter how legally brilliant you are, there is always an alternative.”

And alternative billing arrangements are exactly what clients are seeking these days.

Legal costs for Fortune 500 companies accumulate anywhere from $20 million to $200 million per year, according to experts like Courtney Sapire, chief marketing officer for RFx Legal. RFx Legal is a consulting group that specializes in helping companies cut annual legal spending. According to Sapire, reverse auctions can help reduce legal costs by as much as 15 to 40 percent.

Reverse auctions or competitive bidding is especially conducive to hjgh-volume work, such as tax filings and intellectual-property transactions, whose processes are particularly routine.

“Is it making all of us uncomfortable? Yes. Especially when you start to move away from the more routine sort of work,” counters Toby Brown, the director of pricing at Vinson & Elkins LLP.

Attorneys and legal staff may be concerned, but clients appear eager to embrace this new pricing scheme. Many large companies, including GlaxoSmithKline PLC, eBay Inc., Toyota Motor Corp. and Sun Microsystems, have already used reverse auctions to acquire legal representation.

It’s the exact kind of work that other large companies, including Microsoft and Hewlett-Packard, have chosen to outsource overseas.

Like of competitive bidding, outsourcing allows “routine and repetitive” legal tasks that expensive in-house lawyers are not excited about to be completed more efficiently and affordably.

For example, Microsoft, which houses a $130 million legal budget, assigned its most routine legal work to 80 legal vendors in India. As a result, its in-house counsel was more available for complex research regarding patent conflicts.

In addition, Microsoft’s preferred provider program, involving roughly 50 American attorneys, helped decrease legal costs associated with obtaining patents, which amounted to, on average, $20,000 per patent. Solo practitioners had the freedom to negotiate alternative and fixed fees to significantly reduce Microsoft’s patent costs.

The same small firms and solo practitioners sought by Microsoft are the type of lawyer available for price negotiation in reverse auctions.

Shpoonkle, a legal-aid website launched in March, uses competitive bidding to match customers with individual attorneys or small law firms. The average hourly fee charged to Shpoonkle’s clients is approximately one third of the national average, or $280 per hour, says the website’s founder Robert Niznik.

More and more websites are popping up everyday ready to provide competitive prices for legal services that are typically delegated in-house.

So, are reverse auctions and outsourcing firms a replacement for or supplement to in-house corporate counsel?

“Our own people now are able to spend time on higher value work,” concludes Horacio Gutierrez of Redmond, Wash.-based Microsoft, about the challenges faced by in-house counsel and the outsourcing trend.

“These success stories show you can be innovative.”

-WB

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