Use hours of lawyer work, not amounts paid, when competitively bidding work

More law departments are trying selective outsourcing, where they ask law firms to bid on what they would charge to handle a tranche of matters. For example, long ago Alcoa chose a firm to handle its litigation, and more recently Ingersoll-Rand chose a firm to handle all its non-litigation IP matters.

If you tell the bidding firms how much you spent on the type of matters over the past few years, the firms will think in terms of some reduction from that average (or most recent figure, or some variant figure). (See my post of Nov. 8, 2005, which touches on this point.)

If, however, you convert the data you have on amounts spent into data on lawyer hours worked, then firms will diverge more in their bid amounts, for the simple fact that they have different billing rates. You can convert amounts spent to lawyer hours by figuring out a representative figure for blended billing rates.
Better to give trends in hours than in dollars. (Meta-post on blended billing rates of outside counsel: see my posts in 2005 of March 29 on the effects of converging on blended rates, July 30 on surveys of billing rates, Aug. 21 on differences between firms’ blended rates, Sept. 4 on GE and blended billing rates from auctions, Sept. 5 on blended rates not necessarily reducing total fees, Sept. 10 on the relation to size of law firm, Sept. 10 on survey data about the three largest firms of a department.)

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