Dan Troy, our general counsel, is a firm believer that the billable hour promotes inefficiency, and I agree.
When Dan joined GSK in 2008, he asked me to transition our outside legal spend from billable hours to alternative fee arrangements (AFAs), such as fixed and capped fees. At that time, GSK spent less than 3% through AFAs. Transforming our billing was a big task, and I wasn't sure we could make it work for complex litigations and transactions across the globe. But my team and I were willing to give it a try--and we've been quite successful.
Today, more than 65% of our external legal spend is through AFAs. We've significantly reduced costs while maintaining excellent legal representation for the company.
Our AFAs sometimes include an electronic reverse auction program, suggested by our Procurement colleagues. They had been successfully using online sourcing for sophisticated services in other areas of the company, so we decided to give it a try. It worked, and so far, that program has included more than 85 firms.
There are times when the lowest bid doesn't win, because another firm may have expertise better suited for a particular matter. We want to have long-term, mutually beneficial relationships with law firms, so it's important to set the right assumptions and to be flexible when things change.
This process has helped GSK save many millions of dollars, which means more funds available to devote to our core mission of helping patients do more, feel better, and live longer.
This week, the Financial Times honored GSK Legal with the 2012 Innovative Lawyer award, recognizing us as a "Standout" law department for "Dramatically reducing external legal spend through AFAs and the development and implementation of an electronic reverse auction system." This award is a real testament to the successes we've had in transforming our outside legal billing. It's the third time this year that GSK Legal has been honored with an award for our work in this area. This summer, we were named an American Corporate Counsel (ACC) Value Champion for making a difference through creativity and value-based legal management skills. And in September, Inside Counsel magazine named GSK Legal to their IC10 list of the 10 most innovative law departments based, in part, on our AFAs and reverse auction initiatives.
I'm now a firm believer that AFAs can work for almost any legal matter--in any industry. It's been eye opening and rewarding to lead this work at GSK.