Few tasks in law firm marketing hold as much promise—and aggravation—as responding to requests for proposals (RFPs). The promise, of course, lies in the possibility of winning a great new client or expanding the work you’re doing for an existing one. The aggravation—well, that could be the subject of an entire series of articles.
But I don’t want to talk about the RFP you got at 4 p.m. on Friday, that’s due Monday morning. Or the one that’s due the day after Christmas, or the one you had to work on through Thanksgiving weekend, capped by a Sunday all-nighter to meet a deadline in Estonia. Nor am I talking about the RFP with a 15-page, single-spaced list of questions, requiring a maximum response of 10 pages, in 12-point Times New Roman font, with 1-inch margins on all sides, that must be delivered by email, and on a CD, and five print copies in three-ring binders, in separate sealed envelopes. And let’s not discuss the ones that demand a detailed work plan and staffing proposal for complex litigation—in 500 characters or less. I’m not even talking about the RFPs for work your firm doesn’t actually do, or the one your partner received weeks ago, but only sent you today, well after the deadline to ask questions has passed. (Yes, these are all real-life examples).
Instead, let’s talk about what may be the most frustrating part of RFPs—pricing. More specifically, the all-too-common failure of the RFP process to provide an open and honest give-and-take about price and value.
Considering that cost is, if not the sole reason, among the most important reasons a client does an RFP to begin with, this may sound surprising. But in all too many RFPs, clients fail to clearly communicate their pricing experiences and expectations to law firms, and firms fail to clearly show the value they offer. Many RFPs ask a lot of generic questions about rates, discounts, alternative fees and budgets, but offer little to no opportunity to clarify the outcomes the client wants, the cost drivers of the work, and how those costs can best be managed. In other words, while certain components of “pricing” are beaten to death in an RFP, “value”—a shared understanding of what the client gets for the price—rarely is. Frequently, only if you survive the second round of the RFP process (typically an in-person meeting) will you have a chance to discuss outcomes, value and costs in detail.
Here’s an example of what I mean: A large company recently sent us an RFP for its preferred counsel panel for a variety of matter types. While the RFP instructions said the company was focused on moving work away from hourly rates to fixed fees and other AFAs, and that the overall goal of the RFP was to reduce costs while maintaining quality of legal work, the pricing section consisted of a detailed hourly rate spreadsheet (with a requirement to either reduce or keep rates frozen for the term of the RFP), and one question asking us to describe AFAs we’d propose. That was it. No information was provided about the amount and scope of work, about the company’s past experience with AFAs, or about the different outcomes it wanted. Nor did the RFP provide a set of assumptions to use for putting together a pro forma AFA.
Even worse, in the written Q&A that preceded submission of the responses, more than one firm asked the company to provide sufficient detail to propose a specific fee, or alternatively, a set of assumptions for a hypothetical one. “We don’t share that information,” the company responded. It was pretty clear that the real focus of the RFP was on getting the lowest hourly rates, rather than on other (and better) ways to get more value for the company’s legal spend.
This isn’t an anomaly. Although I do see RFPs that include enough detailed information to prepare realistic budgets and AFAs, most do not. Almost all RFPs still include a rate sheet, even if the declared intention of the RFP is to move away from hourly-based fees. The Q&A process built into most RFPs also rarely yields the data and other information needed to put together a detailed non-hourly fee proposal—and because it’s typically a one-round written exchange shared with all competitors, doesn’t allow a true conversation between firm and client about value and cost.
The end result is frustration. As vexed as we get responding to poorly conceived RFPs, I’m sure the exasperation is just as great, if not greater, for the clients wading through a sea of law firm responses. Clients are seeking predictability and transparency in the value of fee proposals, including a willingness by firms to have some “skin in the game” in results. The typical RFP fee response—discount rates and a generic description of AFA approaches (many of which are really hourly rate-based fees in disguise), or a hypothetical fee structure studded with so many conditions and caveats that it’s impossible for the client to figure out exactly what it would pay and what it would get for the price—is a recipe for irritation, if not outright dismissal.
So, what to do? Bad RFPs are unlikely to disappear. And truth be told, some RFP processes do let firms and clients have in-depth, mutually rewarding conversations about value and costs. Unless and until they all do, though, here are some recommendations:
1. Start the conversation yourself.
Rather than wait for an RFP from an existing client, take the bull by the horns and ask them now about their work, their perceptions of the value you’re providing, and how you can work together to improve it. Getting the firm and the client to “value harmony” —a shared understanding of the value delivered for fees—requires listening and learning on the part of both parties. Without that conversation, firms might not understand the financial constraints or other challenges the client is facing, and clients may not fully understand the cost savings, efficiency improvements or other value the firm has provided. While many RFPs are the result of corporate cost-cutting initiatives or other top-down management imperatives, I think many others are the result of firms failing to keep clients informed about what they’re doing, and how that translates into value for the client. Starting the conversation also tells the client that you are thinking ahead and that you have the client’s interests in mind. Done right, you might even be able to guide the client’s next RFP process—or avoid an RFP altogether.
2. Ask questions early and often.
When a big RFP comes in the door, it may be tempting for your team to push off what they think is the hardest part (the pricing proposal) to the end. Don’t do this. The last thing you want is to come down to the wire and be rushing to complete a fee proposal without adequate time to consider if it really meets the client’s (and the firm’s) needs. Start the internal conversation among your partners and your finance/pricing professionals immediately. Seek as much clarity as you can as soon as you can from the client about its prior pricing experiences and its expectations and desires for the RFP. If you have a champion at the client who can help guide you, great, but even if the only opportunity you have is the formal written Q&A process built in to many RFPs, use it. Yes, the result of such Q&As is often incomplete and unclear, and yes, your competitors may benefit from the answers to your questions (just as you may benefit from the answers to theirs). Ask anyway. Even a little information is better than guessing at the answers.
3. Give options.
If space and other RFP restrictions permit it, give the client two or three fee options to consider. Even if the RFP doesn’t provide enough detail for a specific proposal, or a set of assumptions for an apples-to-apples comparison of competitors, create your own assumptions and put together hypothetical options for the client to consider. This is where a professional pricing team can really shine; they have the training and experience to analyze a matter to determine the factors that drive the budget and fee, and to put together a range of options. Even hypothetical budgets and fee options, done correctly, show the firm’s experience in staffing and managing complex work, and how it approaches risk-sharing and cost predictability. Make sure that the options are clear and easily understandable, because if you put in too many caveats and contingencies, clients may not be able to understand what you’re offering. Providing options also demonstrates your flexibility and willingness to put the choice in the client’s hands.
4. Learn from the pros.
For large firms, pricing directors and pricing support teams are common and critically important. Partners and marketing/proposal managers can and should learn a lot about what works, what doesn’t and how to build a compelling pricing proposal with the help of such teams. Smaller firms may or may not have equivalent support teams, but many small firms and solos have been leading the profession for years on value-based pricing. Whether you work with a professional pricing team or not, resources are available to help. The Buying Legal Council, the trade group for legal procurement professionals led by Silvia Hodges Silverstein, is a great resource for a better understanding of corporate procurement and other legal services buyers. The Legal Marketing Association, particularly its P3 Conference and related resources, also offers a lot of information and educational opportunities. The International Legal Technology Association also offers publications and events that frequently focus on pricing, project management and related issues. And clients who are willing to talk with you about why you lost an RFP—and what you can do better the next time—are the best resource of all.
About the Author
Jim Austin is the director of publications at Pepper Hamilton LLP, where among other things, he helps manage the firm’s responses to RFPs. Contact him at austinj@pepperlaw.com.