The top 10 vendor metrics to use for productive performance reviews

Only 27% of legal ops teams formally evaluate vendor performance, according to a survey of 200 legal departments across 21 countries. However, nearly half of the surveyed teams were interested in doing so. Without a reliable vendor performance management strategy in place, it’s hard to determine which vendors are worth working with—and which ones are costing you more than necessary.

Your ability to track vendor performance metrics is the foundation of any effective vendor management strategy. These key performance indicators (KPIs) create a shared, objective definition of success with outside counsel that you can use to evaluate their work and optimize spend.

In this article, we’ll dive into the most critical vendor performance metrics for constructive evaluations and cover tips to ensure a frictionless process when sharing these reviews with outside counsel.

1. Matter activity

Looking at the total number of open, closed, and pending matters across your vendors gives you a better idea about their workload and productivity. You’ll also gain insight into the division of work across practice areas. This vendor metric helps you identify potential opportunities to consolidate work to firms that have multiple robust practice areas, helping your bottom line.

Source: SimpleLegal

2. Compliance with billing guidelines

Billing guidelines, otherwise known as outside counsel guidelines, set the framework for an effective working relationship with vendors. Tracking vendor adherence to these critical directions was listed as one of the most important performance metrics in 2021 because compliance (or lack thereof) has an enormous impact on legal ops’ productivity.

For instance, if a vendor doesn’t meet your expectations on responsibilities like staffing charges or invoice formatting, this adds more work to your plate because you have to reach out to resolve the issues. When you’re working with multiple vendors, this can quickly add up to hours of back and forth. Additionally, the more vendors that don’t comply with your guidelines, the easier it is for costly problems like inaccurate timekeeper rates to slip through.

3. Average lifecycle time per closed matter

Working with vendors is like working with contractors: you (and your budget) will be the happiest when they don’t drag out the process far longer than you planned. Look at how long it typically takes vendors to close a matter to establish a reasonable baseline for how quickly high-quality work can be performed. This is especially beneficial when you have vendors working on similar matters or practice areas, so you can determine who is costing you extra.

4. Average hourly rate

This vendor performance metric lets you assess your vendors’ hourly rates across different timekeeper levels. Similar to average cycle times, tracking and comparing the average hourly rates of your vendors will immediately shine a light on any firms charging significantly more than others performing the same amount of work. If you decide the quality doesn’t justify the cost, you can use the vendor comparisons as objective support to negotiate your rate down.

5. Accruals

Unbilled estimates from vendors help you predict spend, so inaccurate or missing accruals can quickly throw off your budget. If you track vendor accruals vs. actuals, you can measure the gap in relation to the average 26% discrepancy between the two types of invoices. It’s also helpful to look at their submission rates and how long they take to respond to accrual requests.

6. Alternative fee arrangements (AFAs)

More legal ops teams are requesting alternative fee arrangements (AFAs) from vendors because they offer better control over legal spend than traditional hourly billing. Track which vendors you have AFAs with and compare the cost benefits of different ones offered by vendors. A 2020 Altman Weil study found that 62% of surveyed firms use AFAs, so it’s reasonable to have a conversation with unwilling vendors about why they won’t.

7. Discounts from vendors

Who doesn’t love a discount, especially on steep legal fees? There’s been an increase in outside counsel discounts throughout COVID-19, as vendors concentrated on retaining business. When assessing this vendor performance metric, look at the cost savings from vendor deals like volume discounts. It’s also good to note who has offered discounts as a gesture of goodwill after errors like overbilling or an extended matter cycle.

8. Vendor staffing diversity

The greater the number of diverse employees, the better the overall work performance, according to a McKinsey & Company report. However, the legal industry has been slow to see growth in this area—in 2020, only 18.5% of full-time Am Law 200 and National Law Journal 250 attorneys were minority attorneys.

You can affirm your commitment to diversity and inclusion by working with vendors who also live those values. Have vendors fill out the ABA Model Diversity Survey to ensure the timekeepers and staff assigned to your matters are in line with your diversity, equity, and inclusion initiatives.

You might feel hesitant to use diversity as a performance measurement, but it’s quickly becoming the norm: big-name companies like Facebook have threatened to cut vendor fees or change firms if there isn’t more racial and gender diversity in their vendors’ legal staffing. As Facebook legal ops manager Lauren Hauber notes, “using buying power to push for change will oftentimes start to move the needle.” You can be a force for positive action—one that also ensures you have the most effective team possible.

9. Spend totals

Obviously, one of the most important KPIs to evaluate in vendor performance is how much each vendor costs you. Look at cost-effectiveness in terms of the overall spend to date as well as spend by matter, practice area, timekeeper, and month. If you take these figures into account alongside the previous vendor performance metrics, you’ll gain a solid idea of what your vendors are accomplishing and areas for cost savings and general improvement.

10. Level of satisfaction

In addition to quantifiable numbers, it’s also important to review traits that speak to the overall quality of your vendor partnerships, including aspects like friendliness, collaboration, and openness to feedback. You don’t want to be stuck in a relationship that drains your team, so be sure to take stock of why people like (or don’t like) working with certain vendors.

5 tips for the most successful vendor conversations

Besides vendor performance metrics, communication is a critical piece of any vendor management program. Remember, your vendors are your partners, and they’re human. So don’t use these metrics to condemn your outside counsel—use them to facilitate continuous improvement and reach mutual understanding.

Make these candid conversations less daunting with the following strategic actions:

1. Set a review schedule and stick to it: Establishing a consistent evaluation schedule keeps you and your vendors accountable. This builds trust and also shows that you prioritize continuously improving your relationship.
2. Share your vendor scorecard before you meet with the vendor: If you have to share critical feedback, you want to give your vendors time to digest it instead of dropping it on them right before a meeting. This helps facilitate a calm, rational discussion instead of a reactive one.
3. Discuss the positive too, not just the negative: Be sure to communicate what a vendor has done well, even if you decide to switch to a new vendor. A little positive reinforcement can go a long way.
4. Clearly define your expectations for moving forward: You want to leave vendors with actionable takeaways, not just a pile of numbers. After reviewing where their metrics fall short, explain what specific goals need to be met for vendors to improve.
5. Ask for feedback on your performance: Relationships are a two-way street, so it’s important that you give your vendors a chance to share their thoughts on how you can become a stronger partner as well.

Jumpstart your formal vendor management program

Now that you know more about the foundation of a successful vendor management program, it’s time to get yours up and running. Check out our whitepaper for the 5 key steps you need to take to launch your program and more effectively manage outside counsel.

 

 

 

 

 

 

 

This article has been updated to reflect new information and industry trends from the original article, published on June 4, 2019.