A troubling conjecture about cost creep with procured services

An article about services supply management in Cal. Mgt. Rev., Vol. 49, Summer 2007 at 53, cites a study by a financial services company. The company found that its actual temporary labor prices were 6.2 percent higher than what the company had contracted for. The authors remark: “This range is typical of procured services.” That remark says to me that it is common for prices of services – dare we consider legal services? – to exceed what was agreed to.

Law departments don’t often negotiate fixed fees (See my post of March 1, 2008: references cited on fixed fees.) or even blended rates, so they have little ability to calculate pricing over-runs. But even so, it is disappointing in an age of procurement, to read about services typically costing more than was negotiated.

This blog has mentioned at least nine law departments that have worked with their internal purchasing/procurement/sourcing group (See my posts of Aug. 14, 2005 [Oracle]; April 7, 2006 [GE Consumer Finance and FT Group]; April 30, 2006 #5 [Microsoft]; Aug. 2, 2006 [Sears]; June 16, 2006 [Bank of Ireland]; May 9, 2007 [Pitney-Bowes]; July 29, 2007: [BMO Financial Group]; and Nov. 13, 2007 [Dell]. In my consulting, I have worked with at least four other law departments that have drawn on the skills and disciplines of their procurement colleagues. Many more company’s law departments have done so (See my post of March 13, 2007: 2006 Hildebrandt Law Department Survey found 11 percent of 201 companies agreed that within their company procurement had an active level of participation.).

Other comments on this blog have explored the joint efforts of law and procurement (See my posts of Feb. 20, 2005; Aug. 20, 2006 on a “purchasing” perspective; March 13, 2007 regarding some survey data; and July 29, 2007 on software for a procurement process.).

Even so, law has proved to a be a tough nut for sourcing groups to crack (See my posts of Jan. 13, 2008: delays of procurement processes sap their attractiveness; Jan. 16, 2008: legal spend is on the frontier of procurement’s attention; Jan. 8, 2008: a bizarre case study; and March 20, 2007: best practices in procurement talent management.).