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Call it Priceline for corporate lawyers. If law firms once expected to woo clients over long dinners and endless rounds of golf, one major corporate client has decided Internet chat rooms and online auctions will work just as well. In a letter sent Sept. 29 to many of the nation’s largest law firms, J. Keith Morgan, general counsel of General Electric Commercial Finance, invited the firms to participate in a competitive bidding process hosted by Procuri.com, a provider of Web-based “self-service strategic e-sourcing solutions.” Different online “competitive bidding rooms” will be established for each area of expertise, though large firms are invited to compete in multiple bidding rooms. “Our ultimate goal is to create a short list of approved law firms in each Competitive Bidding Room that will handle all of [GE Commercial Finance's] legal work for a two-year period starting in January 2004,” Mr. Morgan wrote. Mr. Morgan did not return a call seeking comment. GE Commercial Finance, a division of the GE Corp., is a leading provider of financing and leasing for aircraft and capital equipment, with more than $200 billion in assets. As different as such a competitive bidding process may appear from traditional notions of lawyer-client relationships, many law firm partners said GE Commercial Finance’s approach was only the most extreme illustration to date of how corporations increasingly view lawyers in the same way as other outsourced service providers, with an eye toward efficiency above all. “Cost and value are not always the same thing,” said one New York law firm partner who has been contacted about participating in GE’s online process. “The problem with competitive bidding is it assumes all lawyers are created equal, and they’re not,” he continued. “[Auctions] tend to create a lowest common denominator. They don’t value relationships. They don’t value unique skill sets.” But the partner said it was “unfortunate but inevitable” that corporations would take an approach with lawyers that seems to work well with other service vendors. More than most companies, General Electric has sought to rationalize and systematize processes. One of former Chairman Jack Welch’s major legacies at the company has been his Six Sigma program, cited in Mr. Morgan’s letter and described in company literature as the way GE employees learn to measure “how far a given process deviates from perfection.” Other GE divisions have sought to reduce legal costs by outsourcing work to lawyers in India. Other corporations have subjected their lawyers to different cost-control regimes, and most now routinely send law firms requests for proposals (RFPs). The law firms then respond with what are essentially bids for the work, often via post or e-mail. One firm’s managing partner said the process was already so impersonal that he saw little difference in an online bidding process. “Instead of sending an RFP, they do it online,” he said. “What’s the difference? One way involves a lot fewer dead trees.” The managing partner said he expected corporations would pre-screen the law firms they invited to participate in their online auctions, so the bidders would all be firms capable of performing the work. “I think it will work out fine,” he said. Efficiency Logic The head of one firm’s New York office said an online competitive process could work for commodity legal work, but noted there was always a risk corporations might extend the efficiency logic too far. “When a $100 million financing crashes, that’s a much higher cost than you’re saving with an auction,” he said. “There’s a danger you’ll drive away people who can get better pricing.” The same partner also expressed concern that the process of choosing counsel could increasingly be placed in the hands of non-lawyers. In the case of GE Commercial Finance, plans outlined by Charles Kirol, the company’s manager of global sourcing, have each bidding room jointly run by an in-house lawyer and a “bidding process manager.” “If they’re running the auction, that’s fine,” he said. “If they’re picking who wins, that’s not fine.” The GE Commercial Finance bidding process does include questions to elucidate non-economic reasons for selecting a law firm. According to an example sent to firms, the company will be considering a firm’s expertise, support capabilities and conflicts, along with hourly rates for partners and associates. A spokeswoman for Atlanta-based Procuri.com said the company had hosted earlier legal services “events” for companies seeking lawyers for bankruptcies or due diligence. The companies had saved an average of 24 percent, she said via e-mail. “Our philosophy centers on the cornerstone that companies can auction any material or service as long as its a competitive marketplace,” she said.

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