Legal Business Blogs

Pay to play – Bluechip clients force law firms to pay to pitch as GCs flex buying power

Major companies are pressing external counsel to pay to compete for adviser spots in a move set to be resisted by some major law firms. The practice sees law firms paying to be ‘validated’ by a procurement company, effectively pushing the cost of the agency onto the pitching law firms. One prominent case has been National Grid’s ongoing panel review. Santander has also used a comparable model on a recent pitch.

The National Grid panel review, covering a range of work understood to be worth about £12m a year in the UK alone, began six months ago and is due to be finalised at the end of November. Six to ten spots are available on its roster, which is being reduced from 12 advisers.

Firms pitching for the FTSE 100 energy company’s panel, however, had to pay to register on a system called UVDB, provided by procurement agency Achilles. This system provides more than 65 buyers in the utilities sector, including National Grid, Thames Water and SSE, with access to more than 7,000 suppliers that Achilles audits. Santander, meanwhile, is believed to have used the company Hellios for a similar process.

One firm told Legal Business that the first stage supplier qualification process for National Grid cost £540, followed by a £1,200 fee for an all-day assessment. Covering the third party procurement costs came as a surprise and was described as ‘unusual’ by one firm.

‘We’ve come up against procurement agencies in the past,’ said a partner from another firm. ‘But they tend to get paid based on how much they save in legal fees.’

A National Grid spokesperson said it and other water, energy, transport and postal services companies had to comply with the Utilities Contract Regulations 2016, which require it to competitively tender works, goods and services above certain thresholds. To do this it used the Achilles UVDB system, which both advertises new tender opportunities and annually audits supply chains.

‘We use the system to carry out a first-stage supplier qualification process and interested firms need to be fully validated… to be able to receive any new business opportunities or tenders published on Achilles UVDB.’

The company had, however, received an email from one interested bidder querying how being charged to participate in a tender was allowed under those regulations given that free access to documents via the Official Journal of the EU (OJEU) was a requirement.

‘The charges that are made by Achilles are not for accessing the procurement documents but for qualification to bid for all buyers in the utility market,’ the spokesperson said.

They added that before publishing its Legal Services Framework Tender earlier this year, vendors were told they needed to register on the system through both a letter and a notice on the OJEU. ‘The interested parties were made aware of the requirement to undertake any required audit prior to contract award and were notified of the associated cost in the same letter sent in March. They were advised the audit process could have been completed by contract award.’

The National Grid review has reached the negotiation stage, with the contract set to run for three years with two possible extensions in 12-month increments. National Grid’s tender notice said it was seeking ‘unparalleled business driven legal services’ across areas including energy and regulation, competition law, property and planning, commercial, disputes, trademark and patent services, construction, corporate, health, safety, environment and employment.

‘What they’re looking at doing is having a smaller number of firms advising on a broad range of things and going off panel for others,’ comments another partner. ‘In the old days of a large panel, there wasn’t the volume of work available and some firms were getting unhappy.’

The company’s last full panel review was in 2015. Addleshaw Goddard, BDB Pitmans, Bryan Cave Leighton Paisner, CMS Cameron McKenna Nabarro Olswang, Dentons, DLA Piper, Eversheds Sutherland, Herbert Smith Freehills, Irwin Mitchell, Linklaters, Norton Rose Fulbright, and Shakespeare Martineau make up the panel, which was renewed for two years in 2017.

Attempts to push additional costs on pitching firms will be unpopular at a time when plcs are forcing law firms to go through increasingly complex and expensive tenders. Recent years have already seen law firms set aside millions of pounds annually to support central bid teams and individual pitches can easily consume tens of thousands of pounds of staff time.

Some will see such tactics as a step too far at a time when law firms are already being pressed to cut rates and provide more gratis services to major clients. Such tactics recall attempts over a decade ago to usher in reverse auctions, an online model that proved hugely unpopular with law firms.