If you think e-auctions are exclusively for the property market, then look out because they’re happening in the legal sector too.

Some law firm clients are taking stock of the current economic climate and seeking to extend existing relationship panel terms to help provide temporary relief on legal spend. Other clients, however, are becoming even more bullish and revisiting the use of e-auctions for specific matters or even at the wider relationship level.

Under the hammer

From a law firm’s perspective an invitation to participate in ‘client X’s’ e-auction is almost guaranteed to be met with groans – especially if for a major client of the firm. In part this is due to fear of the unknown, but there’s also the more justifiable fear of one’s legal services being ‘commoditised’ – where price is seen as the sole determinant of value. The legal press also continues to carry a number of articles on the theme (perhaps this contributing to law firms’ fears) including one about a relatively recent e-auction by a French bank, which stood out if only because one magic circle firm explicitly refused to participate.

Yet e-auctions are something we need to get used to, especially given the additional impetus and focus that a number of well known software providers have brought to this type of commercial negotiation in recent months.

Why have an e-auction?

So what’s the actual intent of an e-auction? If used well, it’s just a tool to help complement the broader procurement process – one purely focused on the ‘price’ component of the selection decision. In many respects it’s there to compress the commercial negotiation process only. As such, it’s a valuable tool to many operations, procurement and law department leaders. But if used as the sole determinant of firm selection (as in the case of another major bank) it can fail – producing a collection of low-cost (and potentially lower-value) providers.

One size doesn’t fit all

A number of other challenges exist. First, as in any auction, it is important to ensure there is a clear description of what’s up for bidding. This is easy with an antique lampshade, less so with legal services. A clear scope of services is essential.  And second, it’s vital there’s integrity in the bids received. There have been many recorded instances where bids clearly weren’t comparable due to the respective bidders’ understanding of scope, leading to wide variation in price for the provision of the ‘same’ legal service.

Having been part of the initial wave of procurement advocates for this approach back in the very early noughties I’ve seen a fair share of successes it’s fair to say, but also a few blips along the way.

Here are 3 key pointers on how to best approach e-auctions:

1. Preparation is key.

Not just for the auction itself (I participated in a three- day one, across 17 jurisdictions, 10 experience levels and eight time zones, with sleeping bags and supplies at the ready) but also in demonstrating value to clients well in advance of any commercial discussions. Build client advocates early and often, so they fully appreciate your value before price enters the equation.

2. You don’t need to come ‘first’.

Work out who you’re bidding against and your strategy to help mitigate random discounting.

3. Know your walk-away point.

And keep to it. Don’t get caught up in the emotion and seek to win at all costs. A clear plan (with impact on profit) is critical. On previous e-auctions, we’ve had a pre-agreed ‘rate movement sheet’ highlighting the impact on rate, realization and profit each proposed increment would have with clear limits in place. For some e-auction events, these rate movement sheets can become quite large but it is preparation time well spent and with a clear financial contribution.  And speaking of limits, when you reach your limit –  stop!

Remember, that our ultimate goal should always be to create greater value for your clients but also (importantly) to capture a fair share of it for yourself.

Need to get ready for an e-auction? Talk to us about how we can help your firm to know, plan and competently address this emerging pricing negotiation.

A version of this article appeared in Briefing (June 2018).

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