The rise of eAuctions and knowing when to walk away

The phrase “we have been invited to participate in ‘client X’s’ eAuction” is guaranteed to be met with a series of groans within many law firms. In part, this is due to a fear of unknown, but also the more justifiable fear of one’s legal services being ‘commoditised’ where price is seen as the sole determinant of value. Yet, it is something that we need to get used to.  

Many major corporate, banking and other sophisticated law firm clients are now resorting to using this process as a means to further drive down cost – either as part of a panel process or on specific matters. Over the last few months the wider legal press has carried a number of articles on this theme, including one about the recent Société Générale eAuction process which stood out if only because one Magic Circle law firm explicitly refused to participate in the process itself.

But what is the actual intent of an eAuction? If used well, it is no more than a tool to help complement the broader procurement process and is one which is purely focused on the price component of the selection decision. In many respects it is there to compress the commercial negotiationprocess only. As such, it is a valuable tool to many legal operations, procurement and law department leaders. However, if used as the soledeterminant of law firm selection (as one other major bank recently did) it can often fail, resulting in a collection of low cost (and potentially lower value) providers.

A number of other challenges also exist. First, as with any auction, the need to ensure there is a clear description of the services being bid on is key. This may be easy with a book or CD, less so with legal services. A clear scope of services required is therefore essential.  

Second, it’s vital that there is integrity in the bids received. There have been many recorded instances where bids received were clearly not comparable due to the respective bidders’ understanding of scope leading to wide variations in price for the provision of the supposed ‘same’ legal service.

Having been part of the initial wave of procurement advocates for this type of approach in the very early ‘noughties’ and working with a number of clients at that time to adopt eAuction processes to their purchasing spend I’ve seen a fair share of successes and also a few blips along the way.

So how can law firms rise to the challenge? Without providing chapter and verse, here are few things you should focus on.

(1)          Preparation is key. Not just for the auction itself  - I participated in a client eAuction that ‘end to end’ lasted 3 days across 17 jurisdictions, 10 experience levels and 8 time-zones with sleeping bags and food supplies to the ready - but also in demonstrating your value to your clients well in advance of any commercial discussions. Build your client advocates early and often so they fully understand and appreciate the value you deliver to them before price enters the equation.

(2)          You don’t need to come ‘first’. Working out who you are bidding against and working out your eAuction strategy (yes, you do need one) will help mitigate random discounting.

(3)          Know your ‘walk-away’ point . . . and keep to it! Don’t get caught up in the emotion of the event and seek to ‘win’ at all costs. Having a clear plan of what you can and cannot discount further (and impact on profit) is critical. When you reach your limit STOP.

Remember that ultimately you need to create greater value for your clients and capture a fair share of that value for yourself. eAuctions often challenge this dynamic. 

Do you know your walk-away point?