A £10 million deal between eversheds and tyco has taken the partnering concept to a new level. could other firms follow suit? Cameron Timmis reports


Last month, US conglomerate Tyco launched a new legal services model for its European, Middle East & Africa (EMEA) operations. The new model, known as ‘SMARTER’ (Segment and Subject Management, Regional Teams, and External Resources) combines a reorganisation of the company’s in-house legal department with a radical shake-up of its external advisers. Instead of using 250 law firms, as in the past, Tyco has appointed just one firm – Eversheds – to be its single adviser throughout the entire EMEA region.



‘We have literally created a bespoke structure,’ says EMEA general counsel Trevor Faure. Nonetheless, it draws heavily on the ‘partnering’ model first devised by US company Dupont 15 years ago, which aims to reduce legal spend by establishing a closer and more efficient relationship between client and law firm. Frequently such arrangements involve a client negotiating a sole supplier agreement with a law firm across one geographic region or practice area. Eversheds, as it so happens, is the UK partner for Dupont.



Over the years, a number of companies and law firms have adopted the Dupont partnering concept (also known as ‘convergence’). What is different about the Tyco/Eversheds SMARTER model, says Paul Smith, the Eversheds’ client relationship partner for Tyco, is its scope – the firm will be providing legal advice across the ‘whole range’ of Tyco’s work areas – commercial law, employment law, real estate and IP – not in one country but across 31 different jurisdictions. This, says Mr Smith, is taking convergence to its ‘ultimate’ level.



For Eversheds, the prize is a big one. Over the two-year duration of the deal which has been agreed, the firm is expected to net £10 million in fees. ‘It validates our international strategy… it provides work for all our offices… and we get their work for a guaranteed period,’ says Mr Smith.



Equally, Tyco sees numerous advantages flowing from the arrangement, which covers two of its EMEA business divisions: fire and security products, and engineered products and services. One benefit, says Mr Faure, is that the firm will now get ‘systematic and consistent’ legal advice across all those countries where it operates. As part of the agreement, Eversheds will be assigning one full-time lawyer to Tyco in eight jurisdictions: the UK, France, Germany, Italy, the Middle East, Poland, Benelux and South Africa. In those countries where it does not have offices, or associated offices, Eversheds will be working with ‘best friends’.



Tyco will have no direct relationship with any other law firms – Eversheds will supervise and manage all the work conducted across the region. ‘There is one agreement with Tyco,’ says Mr Smith. ‘Everyone will be reporting and carrying out the same levels of service.’



As well as a client relationship partner, Tyco also benefits from having a full-time project manager at Eversheds to oversee the implementation of the SMARTER model, an innovative feature of the arrangement that Mr Faure says helped Eversheds to secure the deal.



Another plus for Tyco is greater certainty and control over its legal budget. Thanks to what Mr Faure describes as a ‘very detailed service-level agreement’, the two parties have agreed a fee structure based on a combination of fixed fees and a bonus system. The upshot of this will be a significant, ‘double-digit’ reduction in the company’s legal costs, with Tyco having negotiated

a ‘significant reduction in the hourly rate.’



The reason Eversheds is able to offer such competitive rates, says Mr Smith, is because of the large investment the firm has made in technology tools, such as Dealtrack, a budgeting and planning project management tool, and Rapid, a project management tool for litigation. These allow the firm to automate certain areas of work and deliver it at lower cost. ‘Wherever possible we try and commoditise the work,’ he says.



Given the clear advantages of a partnership model, it is surprising perhaps that few partnering agreements exist. While many clients have embraced the idea in a general sense – applying it to panel reviews – few have entered formal partnering agreements with a single law firm.



A true partnering agreement should provide the law firm with some guarantee of work on a sole supplier basis. That said, even most partnering agreements, including the Eversheds/Tyco initiative, are not wholly exclusive as they reserve the right for the client to pick other law firms. ‘We haven’t said the magic word “exclusive”,’ says Mr Faure. ‘For certain specific projects, we are at liberty to choose other firms.’ Major mergers and acquisitions (M&A) work, for example, is beyond the scope of the agreement.



Richard Wiseman, general counsel for M&A at Shell, is not surprised that such agreements are rare. ‘I can see the attractions for some clients but why would you want to put all your eggs in one basket?’ Even within the UK, says Mr Wiseman, ‘the range of advice we need is unlikely to be provided at the highest level by any one firm. You might take the view that for every conceivable thing we want to do, a magic circle firm is good enough but I can think of areas where they would not be the best in every jurisdiction.’ Certainly ‘no one has approached us on that basis,’ adds Mr Wiseman.



In the past, says Benita Kumar, a consultant at legal consultancy Jomati, and formerly head of legal at Henderson Global Investors, some clients may have had an old-fashioned style of partnering with a particular law firm, based on a relationship with a single partner. But nowadays, she says, it is hard for either side to commit to this level of relationship. Most people will ‘shy away’ from any arrangement described as exclusive.



On the one hand, says Ms Kumar, general counsel are reluctant to be tied down to one law firm, knowing there is such a range of legal services on offer. ‘The risk is that you can be unaware of a superior offering elsewhere… and your firm can get complacent.’ On the other hand, she says law firms are wary of agreements that may mean they could be conflicted from acting for other clients. ‘I spoke to one senior partner who said “We would not want to partner – we want a separation of powers”.’



Although still unusual to see, one area where a number of partnering arrangements have been agreed is in the public sector. Essex County Council, for example, has a partnering agreement with London firm Nabarro Nathanson. Wakefield District Council operates a similar agreement with Leeds-based Walker Morris.



‘There’s no formal exclusive agreement,’ explains Walker Morris partner David Kilduff. ‘They reserve the right to go to another law firm, but the majority of work they put out to us.’ The scope of the work ranges from child care law and governance issues to construction contracts, employment advisory work and major projects work. According to Mr Kilduff, the agreement also includes quarterly meetings between the client and Walker Morris’ partnering committee.



Anthony Armitage, director of legal services tendering company First Law, has been involved in several public sector tenders where a partnering arrangement was negotiated – which he defines strictly as an exclusive deal based on a fixed fee or annual retainer. He cites two examples: the General Medical Council, which has an agreement with City firm Field Fisher Waterhouse to conduct its disciplinary cases (the fees are based on a fixed cost per 100 cases), and Daventry District Council, which has an exclusive agreement with Cambridge and Northampton firm Hewitsons.



While Mr Armitage sees significant advantages in partnering arrangements for public sector clients – budget certainty and being able to demonstrate ‘best value’ – in practice, he says, putting a deal together is a complex task: ‘The reason we’ve been able to do it is because the clients in both cases kept a reasonably good record of expenditure in the past. It was relatively easy to look back at that and see a pattern of work.’



Without high-quality information, says Mr Armitage, parties entering a partnering agreement could expose themselves to big risks: ‘For the law firm, the risk is clearly that the work is more than they anticipate, so they end up incurring more costs and not recovering the fees. For the client, the risk is that the [cost of] the retainer is over the top for the work. I think most clients would like to do it, but they just don’t have good enough information on historic expenditure to make the calculation.’



Equally, says Mr Armitage, ‘the blame often rests with the law firm for not supplying good enough information about its fees’.



With better information systems and recording of legal expenditure, it may be that partnering agreements will soon become more commonplace. Certainly Trevor Faure maintains that models like SMARTER, which provide clients with greater control of legal expenditure and reduce legal costs, are relevant to all companies. ‘I think this is a scalable model,’ he says. ‘You may have fewer segments and fewer models, but you simply scale the model according to the complexity.’



Cameron Timmis is a freelance journalist