Killing the billable hour
In 2013 Pinsent Masons was appointed sole adviser to global infrastructure giant Balfour Beatty for a broad range of legal services.
At a stroke, the appointment gave the FTSE-listed business complete certainty over its legal spend for a number of years, in addition to access to detailed management information to help assess business performance and drive continuous improvement.
Further, while Pinsent Masons has always advised on elements of complex and critical work, the deal is structured in a way that benefits Balfour Beatty the more often that happens.
This landmark deal fundamentally recalibrated the client/ private practice relationship away from the billable hour – and there is evidence that this model is catching on.
This matter captures the essence of the ‘more for less’ agenda among purchasers of legal services and how a factor perceived as a threat by some firms can be turned into opportunity.
Following an extensive investigation into the legal services provided to Balfour Beatty across the world during 2012, the infrastructure giant decided that an innovative approach was required and asked several firms to respond to an RFP which proposed a new way of working in the UK. The goal was to take significant cost out of the system while retaining the appropriate level of legal quality.
Under the new arrangement external spend was to be split into two categories: ‘everyday’ legal work, which is not necessarily value-adding to the strategy of the business but needs to be done well and as efficiently as possible to prevent escalation; and more complex, value adding work, which is inherently more difficult to predict and to price.
The RFP also set out that Balfour Beatty was targeting significant savings in its UK ‘everyday’ legal spend which would be achieved by consolidation of spend, economies of scale and continuous improvement.
At its most simple level, Pinsent Masons responded with a blend of technological innovation and imaginative pricing which fundamentally shifted arrangements away from the hourly rate and incentivised efficiency.
Pinsent Masons’ proposal was based not around hourly rates but simply the ‘number of matters’. This gives Balfour Beatty the required level of certainty over its legal spend for BAU work for a number of years. Significantly, it also places the emphasis on the external advisers to conduct work efficiently and maintain acceptable levels of profitability.
This required a significant amount of innovation and Pinsent Masons has developed a suite of technology-driven solutions – such as bespoke case management and matter opening systems – to achieve that aim. No instructions can be made or accepted without passing through an online instruction portal, which in turn gives senior management total visibility and transparency over the matters being instructed and subsequent workflow.
The technological infrastructure means that detailed management information can and is fed back into the business, detailing the types of work instructed, the level and type of demand from different business divisions and corporate entities, geographical breakdown of work and so forth. In this way, strategic issues can be indentified, resolved and in some cases pre-empted in a way not seen before.
Innovation in client service
The account is structured in such a way that a formal Steering Committee (with three representatives on each side) meets on a monthly basis to look at how the account is operating. It also analyses the comprehensive management information available as a result of the ‘helicopter view’ afforded by the use of a sole adviser, and address any issues, share strategic insights and drive continuous improvement.
Additionally, six-monthly relationship reviews are conducted which incorporate surveys of users of legal services. During the last such review, 90% of respondents using Pinsent Masons services reported being satisfied or very satisfied with key performance indicators such as matter set-up, the relationship with Pinsent Masons’ lawyers and the services offered by the firm.
Innovation in pricing
There are two primary innovations linked to this deal. The first is the scale and scope of the fixed fee arrangement which, we believe, is unlike any in the market.
Second, Balfour Beatty is incentivised to use Pinsent Masons on a higher proportion of complex and critical work – and in so-doing adding value to the overall relationship.
There can be no doubt that the arrangement is proving to be a major success for both parties with several thousand matters being instructed. The goal was to take significant cost out of the system while retaining the appropriate level of legal quality. We are on course for achieving greater savings that those originally targeted, and satisfaction levels within the Balfour Beatty business are consistently good.
Across the legal market as a whole, the deal has had a significant impact. Pinsent Masons has been appointed as sole adviser to E. ON UK Plc on the vast majority of its legal work, while several other clients have expressed concrete interest in exploring a sole adviser model.
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