Partnership between E.ON and Pinsent Masons
In 2013, after a competitive tender, the UK arm of international energy giant E.ON reduced its pool of external legal advisors from around 40 to just one. Pinsent Masons created an online menu of fixed prices, allowing the client to instruct online in minutes, with absolute certainty on fees. Forum explores E.ON UK’s award-winning sole-supplier arrangement with Pinsent Masons.
Forum: Can you explain the outline of what you’ve done and how it’s different from a normal deal?
Jonathan Fortnam: E.ON ran a competitive tender process for all of its UK work, and we came up with a menu of fixed prices, for everything they might outsource, from a standard form nondisclosure agreement all the way through to the suites of documents that go into building a wind farm. Each phase of a task will attract a price, and that price is to be the fair average, with the objective of taking away many of the difficulties that can pollute a client- lawyer relationship, around fees. All the negotiation on price has been done up front – we look at the menu, agree what it is, they instruct online, we have a short period to accept or not or challenge the price. Nine times out of 10 it’s accepted, and off we go. The process used to take a couple of days, and probably about 25 lawyer hours. It’s now done in five minutes.
Kirin Kalsi: Our procurement rules here were changing, and for every spend above £10,000 we had to get a minimum of three bidders in to do that work. People in my team would end up having to spend a lot of time on beauty parades, vetting law firms. That’s gone completely because we’ve had the tender process, we’ve ticked that box and we don’t have to go out to tender with every single instruction. We also get some really useful management information: Every couple of months I get a report from the online system which gives me an idea of which business areas are spending the majority of the value points, and I can work out the more cost-effective, smarter ways of doing things. We can focus on the areas where we’re spending a lot, and work out how we can perhaps produce more precedents for that business area, or give them a bit more training, and actually look at some innovative ways of providing legal resource.
Forum: How do you manage things day to day?
Kalsi: Normally the firm doesn’t really have an incentive to be more efficient, because they’d make less money, whereas with the fixed fee, it’s in Pinsent’s interests as much as in ours for the legal expertise and resource to be used as efficiently as possible. The lawyers don’t just say “yes, of course we can” to a request because it’s extra chargeable hours. They can say “actually that’s not part of our scope and our engagement; you can write the minutes yourself.” For Pinsent it’s a steady stream of income, regular instructions are coming in and it’s really good quality work they may not necessarily have from us otherwise. For us, firstly we know the teams really well by now, and secondly my lawyers aren’t sitting there every month trawling through piles of invoices.
Forum: What technological challenges arose from the online menu system?
Fortnam: The system is based on our bespoke software which we’ve been using for a few years in relation to volume litigation or employment claims. We’ve built a system that streamlines the instruction process, and using the same software the clients can see where claims have got to. So no real issues.
Kalsi: For us it’s just like getting a log-in to any shopping website. We put the online instructions in there and it’s really straightforward.
Forum: Have you had to change how you thought this would work since you actually started doing it?
Fortnam: The arrangement with E.ON involved “breaking the mould” but we had been doing a similar thing for another client so we were confident about what was going to be involved and delivering on our commitments. It is however fair to recognize that this ongoing move away from the billable hour involves a change in mind-set, so that, for example, we are completely focused on the value we are adding to the extent that if a task doesn’t add value we say so and ultimately don’t do it. The billable hour can work the other way and reward lawyers whether or not they add value. Adding value also involves looking at working smarter. To get from A to Z, but not through B, C, D, etc. It’s quite a change of mind-set.
Kalsi: We monitor it closely and we set up quite a strict governance process, with monthly contract manager meetings, and quarterly steering committee meetings, just to make sure we stay on track, and that the ethos of the arrangement doesn’t get lost. We found it’s quite difficult for lawyers who are used to hourly billing to say “no.” Pushing back is actually very difficult for a service provider – it’s not in their genes. They’re trained from an early age to just say “yes” to the client, so this was quite new for them.
Forum: From a client’s perspective I can see this being extraordinarily attractive, but is it better financially from your side?
Fortnam: For sure. The more-for-less agenda has been going on for five or six years now, and law firms have outsourced, northshored, driven rates down, all those kind of things, repairing a challenged model. There comes a point when you just can’t do any more with that and so the smarter firms are investing in technology, and it seems to me if firms are doing that then it’s inevitable they will move to a fair fixed-price regime, because otherwise the old hourly rate potentially penalizes desirable behaviours; they’re getting paid less for delivering a better service and innovative solutions.
Kalsi: From our perspective it’s definitely better. It gives us more certainty on legal spend, it maintains the flexibility that if we’re not doing as many projects as we thought we were going to do we get some money back at the end of the year, rather than if we put a whole pot of money on the table and say “that’s it, whatever happens” – I think that can lead to some quite odd behaviours. It’s the certainty, as well as not having all those invoices that need to get checked, lawyers trawling through time records – that’s just not an effective use of time.
Forum: Would you go back to an hourly rate?
Fortnam: The traditional model might work like this: Let’s suppose a matter took six weeks, the firm gets paid for five, after an argument about the fees, and the result is that the client feels they’ve paid more than they should and it’s taken longer than they wanted, the law firm feels it’s been paid less than expected and it’s been really hard work; so no one’s happy. If there is a fixed-price regime then the law firm can be rewarded for creativity, innovation, thinking outside the box – all the things that the client wants. So this is not just “trimming the edges”; we’re not just looking at a slightly different way of doing things – this is a big change. To give one example, in the course of this past year we’ve been focusing on a particular workstream. Within the regime and environment we’ve created, there’s a certain process which used to take up to six weeks. About halfway through, we got that down to two weeks, and now we’ve got that down to about half a day. That’s a consequence of hearts and minds looking to do things quicker and smarter – the business engaged with the lawyers, both in-house and here, and driving real benefits for the business. It turns on its head how we measure success, in a way that will enhance the reputation of the legal team.
Kalsi: No, we’d really struggle with that. Even if we got a piece of work that was outside the remit of our single supplier arrangement, we’d still ensure that that was done on a fixed-fee basis. What we like about the PM arrangement is that if it’s a fixed fee, say for example a lease renewal, then the thing that may change it is whether you’ve got two landlords or one landlord, but not whether the one landlord is difficult or not, because it’s the Pinsent lawyer who should be able to manage that. And there’ll be some landlords who are very straightforward to deal with, which is why the price is a fair average of the price for a lease renewal.
About the authors
|Jonathan Fortnam is a partner at Pinsent Masons with experience of many complex professional indemnity, corporate and commercial disputes. Fortnam has led teams in the House of Lords and the Court of Appeal, as well as a number of significant high court trials.|
|Kirin Kalsi became Head of Legal at E.ON UK in 2014, having been legal counsel at the company for six years. Previously Kalsi spent 13 years at Wragge & Co advising energy clients.|