American Lawyer chief European correspondent Chris Johnson meets regularly with senior figures in the legal world at their favorite breakfast joints to chew over the industry's tastiest talking points. Johnson's guest this week is John Bennett, international business partner at Berwin Leighton Paisner. On the menu: the U.K. firm’s client outsourcing initiative, Managed Legal Services.
Berwin Leighton Paisner likes to do things a little differently. Whether it's a sustained policy of aggressive lateral hiring—its pioneering Moscow launch in 2009 saw it acquire a 70-lawyer team from a leading Russian firm, including the name partner—or a willingness to rethink the way in which it provides legal services, the 800-lawyer London-based outfit has in recent years developed a strong reputation for strategic proactivity. Former BLP corporate partner Simon Harper was named by The American Lawyer last month as one of the legal market’s 50 top innovators of the past 50 years for his work in establishing its Lawyers on Demand (LoD) initiative, which provides a pool of more than 120 freelance attorneys, backed by BLP training and support, that clients can use to temporarily bolster their legal function.
At my breakfast with BLP's newly appointed international business partner John Bennett, though, we're set to discuss another of the firm’s innovations: its Managed Legal Services (MLS) division. Launched in 2010, MLS is essentially an outsourcing scheme, whereby BLP takes over the inhouse legal function of a large corporate or government entity—including its existing team of lawyers, who become employees of the firm—and agrees to handle the client’s day-to-day legal requirements on a long-term, fixed-price contract.
Bennett, who formerly spent seven years as BLP's head of corporate, says that the firm came up with the MLS concept at the beginning of the recession following increased requests from clients looking for more budgetary certainty when it came to their legal spending.
"Finance directors had finally turned their attention to [inhouse] legal budgets and were looking for savings,” he says. “The classic response of our industry [to such requests] is just to negotiate discounts, but that’s a zero sum game and isn’t really sustainable, as the more you discount, the more you eat into your margins. Instead, we tried to forget how legal services have always been provided and work out how we could do it differently."
We're meeting at The Modern Pantry, in the heart of London’s Clerkenwell, which I've always considered to be one of the city’s best restaurant districts. Housed in a former Georgian steel foundry, The Modern Pantry's imposing brick façade and large, square, metal-framed windows make it look more like a trendy New York loft conversion than a restaurant. The stylish industrial décor continues inside, where gleaming copper lightshades hang from the ceiling and large sections of exposed brickwork are painted white to match the simple wooden tables and chairs. Chefs hustle in an open counter kitchen. The small, intimate dining area is packed and buzzy.
A waiter comes over to take our orders. We’ve been too busy chatting—mainly about our shared love of cycling—to pay much attention to the menu, but we quickly scan the options. It’s a wonderfully inventive selection of unusual flavors and ingredients. Wine-poached tamarillo—an egg-shaped fruit also known as the “tree tomato”—is served with Greek yoghurt and manuka honey; sourdough muffins come with berry and licorice jam or kumquat marmalade; while the waffles are made with sweet corn, feta cheese, green chili and curry leaf, and topped with bacon. We both opt for scrambled eggs, with sides of pan-fried haloumi, spinach, and slow-roasted tomatoes for Bennett; grilled chorizo and caramelised plantain fritters for me. I order a flat white. Bennett asks for a grapefruit juice and a double espresso.
"I don’t normally drink coffee, but today I feel like I need it," he says with a sigh.
Bennett has come straight from the gym, where he has been training for a grueling charity bike ride up the Grossglockner—the highest mountain in Austria, at more than 12,000 feet above sea level. Bennett has taken part in the annual challenge, benefiting children's charity Action Medical Reseach, ever since it was first launched in 2003 by a former director of U.K. retailer Tesco, one of Bennett’s major clients.
A keen cyclist and member of the Finchley Racing Team, Bennett says he is still recovering from a bad crash he suffered a few weeks prior while cycling along the coast of Amalfi in southern Italy, which saw him scrape across the asphalt after his wheels washed out on a wet and windy descent. "It wasn’t very pleasant," he adds with a grimace. He’s also suffering from an eye infection that has forced him to switch from his normal contact lenses to a pair of black, square-rimmed glasses.
Despite all this, he doesn’t seem at all run down, and talks passionately and energetically about MLS.
"Essentially, the concept was to eliminate the 'them and us' of the inhouse and outsourced teams," Bennett explains. “We wanted to just focus on the business and work out the optimum way of collectively providing that service.”
In early 2010, the firm was approached by the then-CEO of Thames Water, David Owen. Previously, Thames—a private utility company that is responsible for supplying public water and wastewater treatment services to most of Greater London—had worked with a range of outside law firms, including Allen & Overy; Ashurst; Denton Wilde Sapte (now Dentons); DLA Piper; Freshfields Bruckhaus Deringer; and Linklaters. BLP already handled around 15 percent of its total legal work by value, having been appointed to the company’s legal panel two years earlier following a beauty contest. Owen proposed radically increasing the amount of work Thames sent to BLP—in return for significant cost savings, of course.
"He asked us what we could do if he gave us more of [the company's] work—he basically wanted to buy in bulk," Bennett recalls. "It seemed a perfect fit for MLS, so, in true Blue Peter style, we said 'Here’s something we designed earlier,' and thankfully, he loved it.” (For non-U.K. readers, Blue Peter is a long-running BBC children's show. During its arts-and-crafts segment, the presenters would just demonstrate certain key steps in creating a particular item and then reveal the finished product, launching the catchphrase: "Here's one we made earlier.")
The firm worked with Thames’s finance director and general counsel to draw up a groundbreaking five-year contract that would see the company’s 19 inhouse lawyers transfer to BLP, which would receive around £5 million ($7.8 million) per year to provide Thames with an outsourced inhouse legal function. In addition, BLP would get first refusal on any work that wasn’t covered by the contract, such as major transactions, projects, and disputes. Bennett says such "out of scope" matters account for about 30 percent of the work BLP does for Thames, with one notable example being the £4.2 billion ($6.5 billion) Thames Tideway Tunnel project to replace London’s ageing Victorian sewer system.
In order to meet Thames's strict requirements for an annual cost saving of at least 20 percent, BLP had to work out how to handle the company’s lower-value, process-driven work, which wasn’t profitable enough for BLP to do itself.
“Even on the most complex assignments, there is usually a huge amount of work that doesn’t need really expensive lawyering,” Bennett says. “Having very smart lawyers just churning out work at very high rates is a ludicrous model.”
The firm considered legal process outsourcing—using an outsourcer in India, for example—but instead decided to select some smaller, regional U.K. law firms to which BLP could feed the more commoditized parts of Thames's legal work. After a survey of the U.K. market, BLP signed up Manchester-based Pannone and Ashfords, a southwest England firm that had an existing relationship with Thames. Bennett says that the two firms are also able to step in if BLP is ruled out of a particular Thames matter due to a conflict.
Bennett claims that the combination of being freed from inhouse administrative burdens—such as managing outside law firms, negotiating fees, and paying bills—and gaining access to BLP’s technology and expertise has increased the productivity of Thames's 19 lawyers by 40 percent following the deal, which moved into profit midway through its second year. He insists that such financial gain is not the firm’s principal concern with MLS, however, and points to "significant" fringe benefits. Where BLP only previously received around 10-15 percent of Thames's high-value legal work—the type not covered by its MLS contract—for example, now the firm basically gets all of it.
"There are all sorts of residual benefits to MLS that mean we don’t have to drive the last ounce of profit," he says. "The experience we gain by handling more of Thames's major transactions also helps when pitching to new clients. The value of that can’t be underestimated."
MLS has not been without its teething problems, however. Bennett admits to some internal resistance to the innovative—but cash-hungry—initiative.
"A number of my colleagues may buy into it conceptually, but they still feel uncomfortable with it in reality," he says. "Generally speaking, lawyers are a conservative bunch, so convincing them that there might be a better way [to service clients] and getting them to work to a fixed budget rather than billing hourly is a challenge—that’s still a challenge, to be honest. It also requires a lot of investment. You need to build the systems and infrastructure, and to put in place a management team for each separate contract. When you sign up new clients, you are creating long-term value, but it absolutely eats cash in the early years. That’s perfectly normal in business outsourcing, but one of the problems with doing that within a law firm partnership model is that we live and breathe by current-year profits. It’s a big ask to expect partners to invest in this when they have mortgages and school fees to pay."
In an attempt to inject MLS with some much-needed impetus, the firm hired former Fujitsu director Andrew MacNaughton in July 2012 to become the division’s first chief executive. Ambitious plans were presented to the partnership, including the goal of signing up two additional clients to MLS within nine months; the possibility of structuring as an ABS and taking on outside capital to help fund the growth; and even the potential of spinning MLS out from the firm to create a stand-alone business, as BLP eventually did with LoD.
BLP spent the rest of that summer pitching MLS to a succession of large companies and government organizations, but while Bennett insists that there was “lots of interest," the firm failed to convert that interest into deals. A proposed contract with utilities company Yorkshire Water broke down after a new head of legal was appointed, while infrastructure group Balfour Beatty opted against MLS in favor of a conventional law firm-client arrangement with U.K. firm Pinsent Masons. (BLP had previously come close to securing MLS contracts with Buckinghamshire County Council and IT company Colt Technology Services in 2010, but both ultimately fell through, with Colt instead retaining Greenberg Traurig Maher.)
As a result, with more than three years having passed since BLP first launched MLS, Thames remains the initiative's sole client.
Then, a few weeks after our breakfast meeting, it emerges that MacNaughton and Thames relationship partner Patrick Somers have both left the firm. When I call Bennett to get his take on the departures, he insists that MLS is not under threat. He explains that while Somers formally headed the firm’s relationship with Thames, the day-to-day activities of its MLS contract were overseen by chief operating officer Suzie Rudzitis and contract manager Christine Siler—both of whom remain with the firm—and that London corporate partner has been drafted in to replace Somers as head of the Thames relationship.
Bennett does say that the firm has decided to stop pitching MLS to new clients for the time being, however, and that it is shifting its attention to bringing the scheme to existing clients of the firm. BLP is currently in discussion with three "strategically important" firm clients to sign them up to MLS-style services, Bennett adds, although he concedes they are unlikely to agree to the outsourcing of their entire inhouse legal function, as was the case with Thames.
Bennett admits that the firm’s reluctance to fully back the initiative is "very frustrating, but understandable," but he remains resolutely confident that the concept will win out in the end.
"If you look at every other function within a company—[human resources], tax, finance, accounting—they’ve all gone down this route," he says. "The innovation we came up with wasn't rocket science—in many ways it was just replicating what has already happened in all of these other areas. There’s going to be a lot more change in the market, and I’d be amazed if within five years' time this doesn’t become a normal part of the legal services landscape."
Breakfast for two came to £31.95 ($50), with service.
Chris Johnson is The American Lawyer's chief European correspondent. Reach him at email@example.com. Follow him on Twitter at @chris_t_johnson.