Hamish McNicol assesses the adviser mood as clients flex buying power
‘Would I say it’s the norm? No. But would I say I’m surprised? No.’
This was the reaction of one in-house consultant to news that major companies are forcing external counsel to pay to compete for panel adviser spots. 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 and creating a ‘pay to play’ tender scenario. ‘You hear all the time of third parties being involved but I’ve never heard that the cost has then been directly passed on,’ the consultant continued.
Blue-chip clients National Grid and Santander were two prominent cases to emerge in September.
In the case of National Grid’s ongoing panel review, which is due to be finalised at the end of November, firms 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, used the company Hellios for a similar process.
One law 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. ‘I imagine there will be a fair bit of pushback,’ said a partner from another firm. ‘We’ve come up against procurement agencies in the past, 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.’
One interested bidder emailed National Grid 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 European Union (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.’
The FTSE 100 energy company’s review has reached the negotiation stage, with the contract set to run for three years. The panel covers a range of work, understood to be worth about £12m a year in the UK alone, with between six and ten spots available on a roster which is being reduced from 12 advisers.
‘You hear all the time of third parties being involved but I’ve never heard that the cost has then been directly passed on.’
‘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,’ commented 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.
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. The move also comes as law firms are 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.