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Are 'Reverse Auctions' the Future of Allocating Legal Work?

The Wall Street Journal reports today on the growing practice among big companies of using "reverse auctions" to award legal work to law firms. According to the WSJ, companies such as GlaxoSmithKline PLC, eBay Inc., Toyota Motor Corp. and Sun Microsystems are already using reverse auctions. Ariba, a company that sells one of the main reverse-auction software tools, estimates that a whopping (and surprising) 40 percent of today's market for legal work "is contracted through electronic, online means, most of which involve a reverse auction."

The article states that law firms participating in reverse auctions congregate in an online chat room where they bid anonymously for legal work as a clock counts down the minutes left in the auction. Whichever firm bids the lowest wins. Glaxo say that it is pleased with the results and that the reverse-auction method is now being phased in "for all substantial legal needs." Glaxo has found that the process allows it to "more fairly evaluate firms' cost-effectiveness on a uniform basis."

Other firms such as Costco, Xerox Corp. and Cisco Systems Inc., however, have steered clear of reverse auctions. Cisco's general counsel told the WSJ that the company "look[s] for our outside counsel to be creative. I'm not so sure being on the spot in a chat room is the ideal format for creative thoughts."

Have any of you participated in a reverse auction for legal work, either on the company side or the law firm side? How was your experience?

Posted by Bruce Carton on August 2, 2011 at 04:33 PM | Permalink | Comments (5)

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