After a four-month project in 2005, the law department of General Electric dropped more than 400 law firms, to a converged group of 94. The final surgery came after an online auction. About 142 law firms competed against each other in auctions for seven practice areas to provide GE “with their lowest rates.” (Corp. Legal Times, Sept. 2005 at pg. 31)
I’m troubled by this brief item. Billing rates – however defined – at best crudely take the measure of law firms. Did the firms give GE a blended rate? If not, did GE look at the percentage drop from “standard rates” and actually fall for that? Would GE not want the best partner to work on its behalf, yet push the firm to lowball use of that person in its bid? Breeds dishonesty, I say. Does the firm that loads its bid with paralegals understand the complexity of the work? If a firm that bids $187 an hour slips in an extra hour or two here and there, what do rates say about cost effectiveness to GE? Will firms be able to get their A-players to burn the midnight oil for GE when their realization rates will suffer?
The article’s snippet lacks enough information for someone to fully assess this step of the lopping process. What it offers reeks of procurement rigidity and per-hour-cost fixation. (See my posts on Feb. 20 and Aug. 14 about procurement and law departments.)