Law Firms Furious over Government 'Fired' Letters

Law Firms Furious over Government 'Fired' Letters

. . as the MED tries to cut Government legal costs

LawFuel - The Law Jobs and News Wire - Law firms are furious at losing valuable government legal work following the biggest-ever legal procurement process which has $100 million in legal fees up for grabs every year.

"National Business Review" columnist John Bowie writes in his "Briefcase" column that firms have received letters advising them that they will no longer be receiving legal work from the Government, who are working to slice millions off their annual legal bill.

The question, however, is whether the changes are really going to deliver either the savings or the value that the Government and the Ministry of Economic Development, who are running the procurement project, seek.

Bowie writes: "The MED procurement boffins seem to occupy a parallel universe. While they talk up a big headline ‘saving’ for the Minister to add to his Herculean list of accomplishments. Lawyers privately rail against the complex procurement process which is so expensive that a large percentage of the government’s legal fees need to be skimmed off the top just to pay for it.

"The reality is that most legal work is already conducted by the biggest firms. Most small firms perform relatively little government work, and that is usually in specialist areas or in the regions. If all the big commercial firms received the other “pop in for a chat” letter, lowball hourly rate deals with these newly-minted monopolists might deliver a quick ‘savings’ figure – perhaps as high as a politically appetising $20-30m – but more sustainable savings could be locked out for 6 years.

"This is because many of the firms excluded are the very firms with top-rate lawyers who already operate at lower rates, and often more efficiently in specialist areas – with smaller teams working fewer hours on comparable transactions – than some of the commercial mega-firms. And this is where the real savings can be made: not so much based on hourly charge-outs but rather on the way that firms operate. Efficiencies gained there can be vastly more valuable in terms of savings and efficiency.

"Savvy government counsel already know this, and many privately fear losing the ability to select some of the country’s best lawyers, many of whom often conduct the same work faster and more cheaply but just don’t happen to be employed by Big Law.

"If enough of these other firms still remain standing, the universes may yet converge sufficiently for MED and the current minister to bask in the headline grabbing chimera as government counsel and their advisers retain just enough choices to actually generate sustainable long-term value for government. If not, the next minister might be forgiven for hearing “would you like a poisoned chalice with that warrant?”

"Although the recession may have cut corporates’ legal spend, along with the Government’s, it clearly had little impact on the bottom line of many firms which, as previously reported, reached $2.75 billion in 2010. Law firm profits eclipsed $1 billion, with an eye watering profit margin of 38 per cent. The big firms anyway seem immune to recession.

"The latest figures are consistent when checked against the contemporaneous data from the Legal Department Benchmarking Report, which exhaustively examines legal cost management techniques. Ron Pol, whose consultancy Team Factors conducted the research, confirms “some businesses have adopted international practices such as tracking leading benchmarks and aligning them with performance improvements in much the same way CFOs and others have long done so in other areas.”

"That may be true, but the reality is that the research indicates some businesses still don’t measure up in terms of using legal efficiency metrics. It’s not just the law firms’ fault, but many managers’ toolkits don’t extend beyond the usual ‘request for proposal’ blunt instruments. All of which augers well for lawyers, who happen to secure government and corporate work, because it will continue to fund a very profitable industry," John Bowie said.

ENDS

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