Legal Business Process Outsourcing Industry Direction Continues to be Dominated by Price-Driven RFP Processes

Legal Business Process Outsourcing Industry Direction Continues to be Dominated by Price-Driven RFP Processes

Law Firm Business Process Outsourcing services sourcing projects, typically Requests for Proposals often run by industry consultants have recently become price-intensive. This is especially true in the AM LAW top 100 firms where many services areas are under price scrutiny.

Law firms are also feeling the pinch of the conversion of their traditional time and materials-based business and billing structure towards more fixed, predictable-priced models. The advent of Legal Project Management, which enables law firms to fix a price or not to exceed for relatively redundant, predictable matters and legal processes continues to get sea legs. Law Firm clients have been pushing for years to get their law firms to move away from time and materials-based billings in favor or fixed cost models.Legal Project Management is in direct response to that.

In fact, law firm clients now use this modeling to create RFPs for matters that they may even bid out to multiple law firms. Further, Legal Process Outsourcing, where non core legal functions like eDiscovery and document review are largely outsourced to cheaper on or off shore options is also gathering steam at law firms in order to remain cost competitive.

This commoditizaion or heavily cost-drive focus of some legal matters and practices is akin to the same approach taken on Business Process Outsourcing. While being cost-reduction conscious to remain competitive is of course a necessity in today’s world, for on-shore Business Process Outsourcing companies, the intense price focus they claim is severely hurting the industry.  Business Process outsourcers–many of whom have significant overhead structures needed to support their clients, often overlooked by RFPs that only focus on the dedicated on site staff–are finding it difficult to remain afloat in the traditional “bodies and boxes” (staff plus office equipment) model.

Consultants managing RFPs for the services for law firms who fixate on the on site staffing costs only, comparing them in competitive bidding scenarios to other vendors who’s wages and benefits are suspect, skew the results. Further, Business Process Outsourcers bake other overhead costs in their on site staffing costs such as for technology resources, industry expertise, research, new product/services development and yes benefits, training, career path that are differentiators in their business offerings. In a business where you truly get what you pay for, law firms are often stuck with new supplier relationships that are less than optimal, unrealistic service levels for the price point paid, higher turnover due to staff with less competitive wages and benefits and a reduction in the traditional value-added provisions outsourcing providers should be introducing.

There are outsourcing providers that will accept lower margins and profitability to get a toe hold in the door, hoping to leverage their expertise in other areas to compensate with other billings at their client engagements, with no guarantees.

In Spite of Price-Driven RFP results, Clients Still Place High Priority on Business Process Outsourcing Services

Price Driven only RFP Projects May Result in Vendors Having Difficulty Providing High Quality Business Process Outsourcing Even Though Law Firm Clients Will Still Expect it via Challenging SLAs

With the focus on many client outsourcing RFP projects becoming more and more price-driven, as law firms try to cut costs in many areas,  outsourcing providers have seen their headcounts cut and more importantly, reductions in their profit margins. Indeed, vendors today admit to single-digit profit margins on some projects, particularly competitive displacements (replacing an incumbent vendor). These low profit margin contracts, many of which are for sizable, national outsourcing contracts covering multiple office locations and contract revenue levels above one million dollars annually, are difficult for a vendor to “offset” with more profitable contracts, a long-standing industry practice.

Outsourcing providers have complained that on many consultant-run projects today,  primarily price-driven pursuits have put pressure on employee wages and benefits plus forced vendor’s hands to have to deploy more and more temporary help to fill lower cost resource positions.

unhappy-24634951For years, clients pushed back on outsourcing providers using temps to fill gaps in open positions or for absent or vacationing employees because temps are generally considered to be less committed, less skilled and less familiar with a specific client’s operations. While this is the new reality for some law firms who engage in new primarily price-driven outsourcing contracts, and the impact of lower wages, use of temps on the overall quality of the operation will only be measured in time, several Firms RAS Consulting recently interviewed were concerned with this direction in the industry.

One of the logical conclusions one would make in primarily price-driven decisions is a diminishing desire by law firms to pay for “premium” level office support services as they have in the past. Vendors who made their living by providing a premium level service to law firms have taken their lumps on these price-driven RFP projects.  But in spite of the logical thought process that, to expect the same level of services for lower cost as not being realistic, law firms still pursuing these price-driven solutions apparently still expect the same (high) levels of service. The old cake and eat it too scenario.

One large law firm based in Boston who is running a closed bid process with a consultant indicated they were expecting some cost savings in their new contract with their incumbent, and would put the project out for general bid if they did not get the results they were looking for But the Firm indicated that in spite of diminishing mail, fax, copy and other service volumes, the services provided by their outsourcing providers, though diminished in volume, as still perceived as critical to the Firm.

Another west coast law firm based in Silicon Valley that RAS Consulting recently spoke to, that also underwent a recent closed bid process to renew with their incumbent provider also remarked that while cost savings are an on going target, especially in contract renewals, a high level of service is still paramount. In spite of corporate downsizing, reduced service volumes, reduced hours or operations, this west coast firm re-affirmed the critical nature of the services. “The Firm still places high value on the services that remain, in particular litigation copying and imaging,” according to this firm.

Law firm revenues are also under attack, as clients are increasingly questioning traditional office services costs for mail, fax, reproduction, courier and other services, making it more difficult to continue to turn these outsourced services into a profit center.

One thing is certain, price pressures will force outsourcing providers to look to lower cost options which will lead to a dilution of the services. Many law firms would object to this reality and should consider this when they negotiate their outsourcing contracts.

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