Dogandpony.com: GE Unit Holds Online Bid Contest to Trim Outside Counsel

At Connecticut's largest firm, Day, Berry & Howard, executive committee Chairman James Sicilian says he has heard of companies staging auctions for legal bids, but did not believe his 210-lawyer, Hartford-based firm was participating in the GE Commercial Finance contest.

These days, says Sicilian, legal clients feel “that more and more things are commodity work ' and some are more willing to shop that work.” Sicilian adds: “There's also a perception that there is, perhaps not an over-abundance, but certainly an abundance of qualified lawyers who can do the work.”

Thomas A. Gugliotti, a partner at Hartford-based Updike, Kelly & Spellacy, heads the Connecticut Bar Association's commercial law and bankruptcy section. GECF's Internet auction approach, Gugliotti says, “sounds like a brave new world.”

The company's highly-interactive bidding process uses an Atlanta-based application service provider, Procuri.com, that boasts a record of driving prices down an average of 24% for buyers, and speeding the buying process by 75%.

Much of Procuri's experience has been in the commodity purchasing world of hard goods, like machinery for United Leasing, ITT Industries, U.S. Steel and Eastman Kodak. [It doesn't list GE as a client, only "an unannounced Fortune 10 company."]

With Procuri's 32 levels of specification, elements of a product or service can be priced with an “exploded view” precision. “For example,” its Web site notes, “a buyer may define a complex manufactured component and accept bids at the piece-part level.” Conceptually, the computerized bidding process disassembles whatever is being purchased ' goods or services ' and invites bidders to offer better terms, not just lower prices. As such, it's a combination bid process and interactive request for proposals.

GECF's pre-qualified outside firms are bidding on a range of legal services, from transactional work to litigation. Like an Internet chat room, the bid process is hosted and monitored, with an internal lead GECF lawyer and a lead bidding process manager.

Lawyers' hourly fees are broken into nine categories, with senior, mid-level and junior partners, equity and nonequity partners, and four levels of associates, based on years of experience. Firms are expected to submit a blended rate for each of these levels, which will remain fixed for 2 years, starting Jan. 1, 2004.

There are two other dimensions besides price, however.

The Procuri software allows candidates to be given points for quality, in areas such as: depth of firm and support resources, capacity to handle volume, ability to interface with customers, and absence of excessive conflicts-of-interest.

A third dimension allows a firm to enhance its bid with custom terms, detailing the law firm's willingness to “establish or revisit fixed or alternative fee arrangements” or to provide “free legal training, seminars, legal updates, courses [and] pre-deal advice.” Firms also are asked how they feel about working to “eliminate or reduce fees to be charged for dead deals.”

To answer the inevitable questions, GE Commercial Finance scheduled telephone conference calls in October, run by Charles Kirol, its manager of global sourcing in Danbury. During the 90-minute conference calls, Kirol walked participants through the process of registering with Procuri.

In an e-mail, Kirol warned, “When the call begins please do not perform introductions. Your competitors will be on the call. … Use your firm's name at your own risk.”

Firms are expected to submit a written pre-bid, which counts as the opening bid. The goal is to select one or more key firms for the various GECF subsidiaries nationally, and bidders are forewarned some winners could be selected before the auction begins, on pre-bids alone.

Once an actual reverse auction starts, it may be tense. Bidders are advised to make every effort to have back-up computer connections on standby. In the event computer connections are lost, the bidder may ask GE Commercial Finance to entertain a signed, faxed bid. If a bid is rejected because the auction closes, the company may, at its discretion, reopen the auction. “Law firms should stay online until they receive a message stating the live bidding period has ended and that there are no plans to reopen the event,” a GECF memo explained.

At Procuri, Andrea Soltysiak is a marketing exec for the 38-employee company. She says services can be auctioned as successfully as goods, and that almost half of Procuri's auctions have involved services, from janitorial work to advertising. Soltysiak says she hired her public relations firm from a range of national and local candidates through the company's system, adding weighting factors for proximity and other features.

In a bold experiment, Stamford, CT-based General Electric Commercial Finance is buying outside legal services over the next 2 years through reverse-auction bidding ' in Internet chat rooms ' this month.

GECF General Counsel J. Keith Morgan notified a select group of law firms earlier this fall that the company will be switching to competitive bidding to “strengthen our strategic relationship with a smaller number of world-class firms.”

With approximately 18,000 employees in 35 countries, GE Commercial Finance is one of GE's largest business units. GECF officials declined to comment on the “proprietary” process until the bidding is over. Spokesman John Oliver also declined to identify any invited bidders.

At Connecticut's largest firm, Day, Berry & Howard, executive committee Chairman James Sicilian says he has heard of companies staging auctions for legal bids, but did not believe his 210-lawyer, Hartford-based firm was participating in the GE Commercial Finance contest.

These days, says Sicilian, legal clients feel “that more and more things are commodity work ' and some are more willing to shop that work.” Sicilian adds: “There's also a perception that there is, perhaps not an over-abundance, but certainly an abundance of qualified lawyers who can do the work.”

Thomas A. Gugliotti, a partner at Hartford-based Updike, Kelly & Spellacy, heads the Connecticut Bar Association's commercial law and bankruptcy section. GECF's Internet auction approach, Gugliotti says, “sounds like a brave new world.”

The company's highly-interactive bidding process uses an Atlanta-based application service provider, Procuri.com, that boasts a record of driving prices down an average of 24% for buyers, and speeding the buying process by 75%.

Much of Procuri's experience has been in the commodity purchasing world of hard goods, like machinery for United Leasing, ITT Industries, U.S. Steel and Eastman Kodak. [It doesn't list GE as a client, only "an unannounced Fortune 10 company."]

With Procuri's 32 levels of specification, elements of a product or service can be priced with an “exploded view” precision. “For example,” its Web site notes, “a buyer may define a complex manufactured component and accept bids at the piece-part level.” Conceptually, the computerized bidding process disassembles whatever is being purchased ' goods or services ' and invites bidders to offer better terms, not just lower prices. As such, it's a combination bid process and interactive request for proposals.

GECF's pre-qualified outside firms are bidding on a range of legal services, from transactional work to litigation. Like an Internet chat room, the bid process is hosted and monitored, with an internal lead GECF lawyer and a lead bidding process manager.

Lawyers' hourly fees are broken into nine categories, with senior, mid-level and junior partners, equity and nonequity partners, and four levels of associates, based on years of experience. Firms are expected to submit a blended rate for each of these levels, which will remain fixed for 2 years, starting Jan. 1, 2004.

There are two other dimensions besides price, however.

The Procuri software allows candidates to be given points for quality, in areas such as: depth of firm and support resources, capacity to handle volume, ability to interface with customers, and absence of excessive conflicts-of-interest.

A third dimension allows a firm to enhance its bid with custom terms, detailing the law firm's willingness to “establish or revisit fixed or alternative fee arrangements” or to provide “free legal training, seminars, legal updates, courses [and] pre-deal advice.” Firms also are asked how they feel about working to “eliminate or reduce fees to be charged for dead deals.”

To answer the inevitable questions, GE Commercial Finance scheduled telephone conference calls in October, run by Charles Kirol, its manager of global sourcing in Danbury. During the 90-minute conference calls, Kirol walked participants through the process of registering with Procuri.

In an e-mail, Kirol warned, “When the call begins please do not perform introductions. Your competitors will be on the call. … Use your firm's name at your own risk.”

Firms are expected to submit a written pre-bid, which counts as the opening bid. The goal is to select one or more key firms for the various GECF subsidiaries nationally, and bidders are forewarned some winners could be selected before the auction begins, on pre-bids alone.

Once an actual reverse auction starts, it may be tense. Bidders are advised to make every effort to have back-up computer connections on standby. In the event computer connections are lost, the bidder may ask GE Commercial Finance to entertain a signed, faxed bid. If a bid is rejected because the auction closes, the company may, at its discretion, reopen the auction. “Law firms should stay online until they receive a message stating the live bidding period has ended and that there are no plans to reopen the event,” a GECF memo explained.

At Procuri, Andrea Soltysiak is a marketing exec for the 38-employee company. She says services can be auctioned as successfully as goods, and that almost half of Procuri's auctions have involved services, from janitorial work to advertising. Soltysiak says she hired her public relations firm from a range of national and local candidates through the company's system, adding weighting factors for proximity and other features.