Canadian Lawyer InHouse

37 CANADIANLAWYERMAG.COM/INHOUSE JULY 2016 L aw D e p a r t m e n t M a n a g e m e n t litigation fi rms such as Ormston List Frawley LLP and Lesperance Mendes in Vancouver, which Shell uses for matters such as environmental contamination. "They're more cost effective than the big fi rms and have the expertise on these issues," says McCue. "There are litigation boutique fi rms in Calgary we regularly include in our bid processes just to make sure we're getting a sense of what the market is, and we go with those fi rms if it looks like they offer the better value on a particular matter." Its other Canadian fi rms are Blake Cas- sels & Graydon LLP, McCarthy Tétrault LLP, McLennan Ross LLP, and Osler Hoskin & Harcourt LLP. At the outset of its panel review process, an assessment was made of whether Shell had enough spend in the different coun- tries in which it operates to justify the time and administrative burden of putting a local panel of law fi rms in place. For each country deemed to have suffi cient spend, a target number of fi rms for the local panel was then agreed upon. With that structure in place, each of the then-250 relationship fi rms was invited to register in Emptoris — a sourcing tool designed by IBM that Shell's procurement team routinely uses for purchasing goods. "Some time and effort was expended to adapt the tool so that it fi t better with our purpose of sourcing legal services," says McCue. After each fi rm was registered in Empto- ris, Shell opened a questionnaire in the tool that the fi rms were then given a couple of weeks to respond to. The questions asked whether the fi rms would commit to work- ing with Shell Legal in certain ways (e.g. deliver project plans; use appropriate fee arrangements; provide two free six-month junior lawyer secondees per year; etc.), as well as more detailed requests for informa- tion around the fi rms' data privacy and cy- bersecurity processes and policies. With the responses to the questionnaire in hand, Shell narrowed to a shortlist of fi rms to continue to the next stage of the review process. REVERSE AUCTION Again using Emptoris, Shell created a sepa- rate virtual reverse auction room for each ju- risdiction where it had identifi ed a need for a local panel, or where it anticipated a need to have rates in place with the fi rms identifi ed for the global panel of six fi rms. The relevant fi rms were then invited to participate in the reverse auction for their jurisdiction at an ap- pointed time. The fi rms were told in advance how many fi rms would be participating, and how many fi rms would be selected for the particular local panel. They were also advised that rates were only one of a number of fac- tors to be considered when making fi nal deci- sions on whom to select for the local panel. Each auction was set to run for 30 min- utes. Once the auction opened, the fi rms would submit bids for the hourly rates for lawyers at the various experience levels set. Once they had successfully submitted a bid, the fi rm would see their relative ranking among all of the fi rms bidding (but not the identity of the other bidders) at each experi- ence level (e.g. lawyer two to four years post- qualifi ed experience — $150/hour = rank three of eight). The fi rms could then reduce the amounts they bid to improve their rela- tive rank at each experience level. This con- tinued for roughly an hour until the online auction closed (and the auctions would not close until 60 seconds passed without a new bid being entered). SUBSTANTIAL REDUCTIONS In most cases, Shell was able to obtain sub- stantial reductions from the rates put in place in 2013, and averaged about 18-per- cent reductions overall. "While we acknowledge that success, keep fi rmly in mind that hourly rates, no matter how low, are but one part of the value equation; much more important is to get a handle on and drive our external counsel to deliver the same high-quality legal services more effi ciently [i.e., bill fewer hours]. We do this through the use of appropriate fee ar- rangements grounded by realistic legal proj- ect plans and management," says McCue. Shell has a strong "appropriate fee ar- rangement" program and a competitive bid- ding process — it doesn't just award matters to panel fi rms automatically. New matters have to go out to at least three fi rms to be bid on and for a proposal of how the fi rm would deal with it. There are no hard cost reduction targets in place, either, but McCue says the goal is to use AFAs to fi nd effi ciencies that will result in lower overall costs. "In the last year, we saw pretty dramatic reductions in cost for the global litigation group," he says. "What we want is for the lawyers to have a commercial mindset in how they approach sourcing legal services. We don't want them restricted to just the panel list but want them to test the market by having a non-panel fi rm come in and bid on a matter as well." However, if all things are equal, Shell will go with its panel fi rm. But in a situation where the non-panel fi rm is truly competi- tive, the legal team can make the decision to go off-panel. We put together a program and educated the fi rms we were working with about what this meant for them and how to work in an appropriate fee arrangement world. GORDON MCCUE, Shell Canada Canadian Lawyer Corporate Counsel Survey COMING SOON ATTENTION IN-HOUSE COUNSEL! Weigh in on relationships with external law fi rms, alternative fee arrangements and more Survey open August 15 – September 12 canadianlawyermag.com/surveys Untitled-3 1 2016-06-06 9:58 AM

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