AFA Reverse Auctions for Litigation Brennan Torregrossa and Justin Ergler

Legal Industry Trends §  §  §  §  § 

Influence of Legal Operations Groups Usage of Alternative Fee Arrangements (AFAs) Streamlining of RFPs Formal and Informal Convergence Programs Introduction of Competition in Fee Negotiations

GSK Cost Saving Initiatives §  §  §  § 

Transition to Non-Hourly, Flat Fee AFAs Robust Sets of Assumptions Used to “Track” Matters “Survival of the Fittest” Convergence Program Matter-Specific Firm Selection and Fee Negotiation

§  Outside Counsel Selection Initiative (OCSI)

What is OCSI?

The OCSI Process IS…. •  Support for in-house counsel’s decision-making process for matter assignments •  A targeted way to gather and evaluate meaningful, matter-specific data regarding the objective capabilities of outside counsel •  A “holistic” evaluation of the quality, experience, and cost-effectiveness components of outside counsel •  A simple process to create efficiencies through the use of standard templates and the leveraging of technology

The OCSI Process IS NOT…. •  A replacement for the judgment and experience of GSK in-house counsel •  A disorganized data-dump of outside counsel information that is useless or a repetition of the data collected in prior large scale RFIs •  A “bottom-fishing” process of selecting only the most cost-competitive firm, with little to no regard for quality •  A bureaucratic, overly-complicated process designed to impede in-house counsel’s swift assignment of matters to outside counsel

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Key Components of OCSI §  Process – GELRT acts of single point of contact between GSK and invited law Firms to ensure consistency and limit the amount of effort required from Managing Attorneys

§  RFP – Qualitative assessment of Firm capabilities specific to a particular matter

§  Sourcing Room – a/k/a “Reverse Auction” used to leverage competition amongst Firms and ensure GSK is receiving fair value for each representation

OCSI Process Flow Managing Attorney (MA) identifies need to engage Outside Counsel (OC)

MA completes OCSI request template and develops preliminary assumptions

MA sends completed template and assumptions to GELRT for review

GELRT provides MA with a side-by-side comparison of RFP responses

OC completes RFP and provides assumptions if necessary

GELRT sends invitations to OC and answers questions about the process

MA and GELRT synchronize assumptions and send to OC

GELRT conducts Sourcing Room and sends results to MA

MA scores the qualitative portion of the RFP (e.g. Attorney Experience)

GELRT contacts unselected Firms and sends engagement letter to selected Firm

If approved, MA contacts selected Firm to begin work

MA sends selection recommendation to Practice Area head and GELRT

RFP Portion of OCSI §  RFP questions are formulated to evaluate the capabilities and experiences of each invited Firm that are most relevant to a particular engagement. For example,

§  Experience of proposed attorney team with similar matters for similar clients

§  Key Impressions of the specific matter at hand §  Geographic coverage of Firm based on needs of a matter §  Firm responses are limited in length to ensure quality, concise answers and to limit the amount of information managing attorneys need to review as part of the process

Sourcing Room Portion of OCSI §  AFA structure that is appropriate for each particular matter §  Key activities / tasks are defined based on the anticipated direction of the matter / transaction

§  # of Depositions §  # of Motions §  Length of Trial §  Firms add activities / tasks as part of RFP portion of OCSI §  GSK consolidates all assumptions and issues an approved set to all Firms

Sourcing Room Structure §  Only short-listed Firms are invited to a Sourcing Room §  Feedback received by Firms §  Their current bid by phase §  Their current rank by phase §  The lowest fee by phase §  Firms do not receive information on the competitiveness of their overall bid

§  24 hours of visibility prior to auction opening §  20 minute “open period” §  No post-Sourcing Room fee negotiations

Litigation Case Study §  Situation §  Urgent need to engage a law firm for a large litigation §  GSK attorney informally surveyed “go to” firms for fees §  Large variance in fees between firms (~$2M) § 

Results

§  8 Firms invited to respond to RFP §  Entire process completed in 5 business days §  Firm selected was not a “go to” Firm §  Power of competition effectively eliminated fees from selection decision

Power of Sourcing Rooms

§  Range of Budgets: $2,120,200

§  Range of Revised Initial Offers: $1,915,000

§  Range of Final Offers: $321,875 §  Range of Final Offers (2 – 6): $71,875

§  Established Fair Value §  Removed Cost from Decision Note: The blinded results above are from an actual OCSI Sourcing Room

GSK OCSI Results and Recognition §  129 OCSI events conducted to date §  Total Estimated Savings: $70.7M (Budget to Final Offer); $41.2M (Initial to Final Offer)

§  131 firms have been trained and submitted proposals §  The OCSI program has won numerous awards and is considered “best in class” both within GSK and by many leading Legal industry publications