Case study: Royal Mail’s legal operations transformation – from Initial Public Offering to Internal Process Optimisation
“Sarah Barrett-Vane, Director of Legal Operations at Royal Mail plc, talks to Practical Law about the benefits of introducing e-billing, the importance of preparing the ground first, and how she has improved Royal Mail’s legal operations in order to reduce its legal spend and increase efficiency.”
Sarah Barrett-Vane has been Director of Legal Operations at Royal Mail since June 2012, beginning in the run-up to the organisation’s 2013 IPO. At the time she began in this role, there were few other legal operations professionals in the UK and while legal operations is still largely a US-driven phenomenon, it is growing in the UK: the Corporate Legal Operations Consortium (CLOC) launched a UK chapter in February 2017 (see Blog post, The emerging disruptor: the legal operations team).
Over the past five years, under two successive General Counsel, Barrett-Vane has instigated and overseen sweeping changes in the way that Royal Mail manages its internal legal operations and liaises with its panel firms. This has resulted in significant improvement in its processes and reductions in the organisation’s external legal fees. Her most recent projects are largely focused on introducing legal technologies to streamline aspects of the legal team’s work: in addition to a recently introduced e-billing system (Legal Tracker), Royal Mail has now introduced contract automation software and trained more junior members of the team to become “contract automators”.
While Barrett-Vane is a keen advocate for legal technology, she believes firmly that introducing legal technologies without having first optimised the legal team’s existing practices and procedures is the wrong approach: “Legal technology is an aid, not a cure,” she says. “It is no substitute for rigorous internal processes.”
On starting as Director of Legal Operations in 2012, Barrett-Vane therefore began by reviewing those processes and implementing practical changes in key areas. Here, she describes what she did to transform Royal Mail’s day-to-day legal operations and its approach to its external instructions.
Private practice, public sector, procurement, privatisation
Barrett-Vane originally trained as a lawyer and worked as a litigator in private practice at Eversheds before moving to become sole in-house lawyer and assistant company secretary for a customer communications business, Communisis plc. From there she moved into the public sector, working for the Legal Aid Agency for six years, first as a contract and procurement lawyer, and then out of the law and into a contract and procurement manager role. “I was very happy there, it was interesting work,” says Barrett-Vane, “I worked on some very high profile legal aid tenders and all my projects went through unchallenged – which is really a key measure of success in that area. But then I got a call from Royal Mail out of the blue, asking me whether I would be interested in a legal procurement job in London, and I went for it.”
Royal Mail was looking for a procurement professional who would be able to manage its legal spend, including conducting a panel review. Barrett-Vane’s background meant that she was an ideal candidate for the role and she spent nearly three years there as Professional Services Procurement Manager.
In early 2012, she had decided to move on and resigned, having been offered a new role elsewhere. However, Royal Mail’s incoming General Counsel, Neil Harnby, asked her to reconsider, offering her the opportunity to write her own job specification for a new position as Director of Legal Operations. She took up the role a year before the government’s decision to privatise Royal Mail was announced.
Barrett-Vane describes her current position as consisting of four main responsibilities:
- Budget management for Royal Mail Group Legal.
- Conducting panel reviews and off-panel appointments and managing all legal providers alongside Royal Mail’s GC.
- Day-to-day management of Royal Mail’s legal operations, including staff plans and secondees.
- Investigating and implementing legal technology and any other operational improvements that can be made to Royal Mail’s existing processes.
She assists the current GC, Maaike de Bie, in ensuring the smooth operation of a team of around 45 lawyers (total staff of 85) working in diverse areas such as the Claims Resolution Team (personal injury) and the criminal law team – alongside the usual practice groups you would expect to see in a plc. The legal operations team comprised Barrett-Vane alone until, in March 2017, she recruited a part-time data analyst to assist her with specific aspects of the new e-billing system and reporting analysis.
Pre-IPO: getting a grip on the legal spend
From June 2012 until September 2013, Royal Mail was engaged in preparations for its privatisation.
As part of that, there was a particular emphasis on ensuring cost efficiency throughout Royal Mail. All departments were looking at both their internal and external spend and how they were managed, and rules were reviewed and rigorously enforced. The legal team was no exception. Alongside all the work undertaken in getting Royal Mail ready for the IPO, therefore, Barrett-Vane reviewed Royal Mail’s “business as usual” legal spend, as well as collaborating with the finance team on designing the instruction and billing processes for projects, beginning with the biggest project at the time: the IPO itself.
BAU legal costs
Barrett-Vane had worked on putting together Royal Mail’s pre-privatisation panel during her time as procurement manager in 2010, but the long-term question of whether it would be fit to service Royal Mail’s post-privatisation needs prompted a shorter-term review of Royal Mail’s general legal spend with its current panel, and how that panel was managed.
The first step she took was to understand how the legal spend was recorded and monitored. “There was little transparency at the time,” she explains. “Group Legal did not have a clear view of what it was spending and why: the finance system at the time (SAP) would give figures that bundled all the costs up together. So, for an instruction to a law firm on a property acquisition matter, it might show you a legal bill of several million pounds, because it would include the price of the property purchased as a disbursement. There were occasional instances of invoices being sent straight to Accounts Payable for payment rather than being channelled through the legal – or now the legal operations – team for checking and approval. Sometimes these would be paid without confirming which matter they related to, let alone details of work carried out. That had to stop.”
This exercise also gave her the opportunity to review the panel management process. “When I worked on the procurement side, I had helped with selecting the panel and drafted the panel agreements, which required meetings to take place every so often, for example. But I could see that some of the processes put in place had fallen by the wayside. We were conducting mini-tenders when necessary because we needed to instruct new, specialist law firms,” she says. Barrett-Vane could also see instances where more rules were required to constrain Royal Mail’s legal costs: her review revealed the occasional example of uncontrolled spend by law firms. GC Neil Harnby also had strong views on this.
Having undertaken this analysis, Barrett-Vane took three key steps:
- Centralising records. She created a single spreadsheet which gave her an overview of all legal costs and which she and an admin assistant updated manually on a day-to-day basis: “We had not got to the stage of thinking about legal tech at that point,” she explains. She ensured that this spreadsheet was an accurate reflection of Royal Mail’s total legal costs by including on it expenses related to the legal team’s discretionary spend on items such as books and legal update services (on which she likewise reviewed the rules and reduced spend).
- Revising policies. Barrett-Vane also introduced new billing and disbursement policies which would apply to panel and off-panel firms. For example, certain expenses that should have been an overhead would no longer be paid and bill narratives would be scrutinised more closely to ensure that law firms were not including those expenses on their bills.
- Informing the panel. Neil Harnby invited all panel law firms to a meeting at which Royal Mail’s focus on cost efficiency and the changes Barrett-Vane had made were explained.
When it came to the costs of the IPO project itself (dubbed “Project New Future”), Barrett-Vane likewise resorted to a spreadsheet. “All firms were put on capped or fixed fees for the IPO,” she says. “That was quite novel in 2012-13. All the fees were put into the spreadsheet, so we knew what our budget was. All the spend was also captured and monthly reports were sent to the finance team. It was a new atmosphere which emphasised transparency and keeping to budget, but the firms got used to it.”
In parallel, Barrett-Vane was looking at law firm management, arranging and attending quarterly meetings between each law firm and the Deputy GC. Neil Harnby centralised law firm management to gain tighter control.
”We were looking at the quality of work done and the fees charged, and seeking to apply more control. We had some difficult conversations, during which we made it clear that invoice control would be the norm,” says Barrett-Vane, who also confirms that she was recording how much money each firm was writing off in order to gauge how realistic the fee quotes for the IPO work had been.
Some of the wastage was, she admits, due to what she terms “scope creep” on the part of Royal Mail, the burden of which rested with the law firms. However, in her view, the approach adopted was ultimately beneficial for parties on both sides of the relationship: Royal Mail became better at scoping its projects correctly and controlling its budget, while law firms rapidly became more adept at offering accurate budgets for the work to be done.
Process improvements: the bottom line
The project pricing processes and budget discipline introduced during the IPO process are now applied to any discrete project Royal Mail undertakes, and the relevant part of the business is encouraged to take ownership of its own project costs and budget at the outset.
This approach has met with some significant success: when Harnby and Barrett-Vane arrived in 2012, no accurate figures for total external legal spend were available. By April 2017, not only was external spend totally transparent, but it had also been reduced by 40%. This was not, says Barrett-Vane, a result of forcing law firms to reduce their rates by half, but rather the result of a new emphasis on controlling legal work scope from the outset and managing spend carefully as an everyday activity. Harnby had also completely restructured the legal team between 2012 and 2015, bringing in or promoting lawyers who understood the new ways of working and priorities of Group Legal.
Post-IPO: resetting the panel
Following completion of the IPO, in early 2014, Harnby and Barrett-Vane returned to the question of whether the legal panel as constituted adequately met all of Royal Mail’s needs. “Now that Royal Mail was a privatised company, it needed a different panel,” Barrett-Vane says. “The existing one, which was very small, had been appointed under the previous GC, and since then we had made quite a few off-panel appointments in areas like competition and innovation. A panel review was also an opportunity to implement the next stage of operations improvements, including new contracts and new charging schedules, and even tighter controls on billing.”
In 2014, therefore, under the direction of Harnby, she and Maaike de Bie (who was deputy GC at the time) carried out a general panel review which resulted in the appointment of twelve firms to Royal Mail’s main panel and of a separate panel of four to handle the “volume work”, such as volume property, employment and personal injury matters.
The mantra at the time was “right firm, right place, right team, right work”: Royal Mail was not looking for every piece of work to be done to the same gold-plated standard, but rather for some work to be “good enough”, taking into account its relative importance and urgency. “The panel was made up of all types of firm, from ‘Magic Circle’ to boutique City firms and strong regional players,” says Barrett-Vane. “It is absolutely right that on some matters you have senior City lawyers charging high prices but that you might choose only to pay paralegal rates for some of your run-of-the-mill commoditised work.”
The new panel was subject to a different management approach to that previously employed:
- Centralised management. The process for managing the panel firm relationships was centralised. Maaike de Bie and Barrett-Vane held regular meetings with panel firms; meetings between the firms and Royal Mail’s GC Neil Harnby were also held, at six-monthly intervals. Each of those meetings followed a standard agenda.
- Regular meetings. In addition to these higher-level meetings, the Royal Mail lawyer responsible for each area of work (such as the Legal Director for volume property work) would speak to the firms carrying out that work monthly. All these meetings were diarised and interim meetings could also be arranged as necessary if an urgent issue arose.
- Fee arrangements. All the law firms were also asked to sign up to an agreement to introduce alternative billing arrangements and to implement such fee structures. Volume work was carried out on a fixed fees basis; non-volume work on a primarily capped fees basis. “Post-IPO, we rarely talk about hourly rates,” says Barrett-Vane. “We have agreed fixed or capped fees on 80% of our matters, possibly more. Even a heavy litigation case which deviates from this principle is likely to have agreed caps for a fixed Stage One, Stage Two and so on. The idea that a law firm simply submits a bill now and then just does not happen anymore. Our budget is reduced every single year, and we cannot operate like that. We have to maintain a very tight rein on costs, both internal and external.”
- Standardised instruction methods. The only way to instruct a law firm or barrister to carry out non-volume work is via a Service Request Form (SRF), which requires the matter’s scope to be determined at the time of instruction as well as naming the responsible fee earner(s) and the type of fee arrangement (that is, whether fixed or capped fees apply). This procedure was embedded in the panel agreement.
- Taking control of the billing system. Barrett-Vane also centralised the billing system by putting in place a process whereby only she could sign off invoices in order that they could be paid. This rule, enforced by Harnby, stopped those occasional instances where invoices would be paid by Accounts Payable without the matter having been managed through the instruction and payment procedures. As part of this step:
- Law firms and chambers were told that all bills should be sent directly to Barrett-Vane for payment. Accounts Payable were instructed simply to stop paying any invoices they received directly.
- Barrett-Vane also stopped any reliance on Purchase Orders for paying any invoices related to legal spend, which the finance team had been used to using in relation to off-panel external spend. This had been an aspect of Royal Mail’s procedures which Barrett-Vane had earlier wished to change, but which had not been a priority in the face of other pressing pre-privatisation matters.
- The panel firms were also given advance notice that Royal Mail intended to move to an e-billing system.
Legal technology: the icing on the cake
Having rationalised the existing processes so far as possible, the next step was to introduce legal technology. Barrett-Vane’s priority was to introduce an e-billing system to replace her master spreadsheet of legal spend that had been manually updated on a monthly basis since its creation in 2012.
”We had paved the way for an e-billing system,” says Barrett-Vane. “Rogue disbursements and expenses were no longer allowed. Our panel firms were invoicing properly and the legal spend was centralised and recorded as best it could be. The scope of all outsourced work was agreed and budgeted for in advance. We were in a good place now to introduce e-billing.”
There was also a recognition that the existing system was in need of improvement:
- The centralised legal spend spreadsheet, while an improvement on what had gone before, was not an error-free solution. It could easily be distorted by simple human errors in entering data, a typo in a budget code, or a law firm using a different reference to the one used inside Royal Mail – all of which were corrected by Barrett-Vane – not a good use of her time.
- This system was very time-consuming, requiring that Barrett-Vane personally check and then email every invoice and accompanying breakdown to each Legal Director, who in turn emailed it to each lawyer to individually check their entries – a cumbersome process.
- Over and above that, while Barrett-Vane maintained this central spreadsheet showing Royal Mail’s budget and spend, and had imposed systems on the instruction and bill payment processes, it was difficult to control providers’ billing methods. Some law firms would send a hard copy invoice, for example, while others would continue to email it to their contact at Royal Mail.
The practical result of all of this was that there were occasions on which the time required to reconcile all of these inconsistencies resulted in late payments. “The latent scope for human error in the existing system which remained after all the changes I had already made was just crying out to be resolved through software,” says Barrett-Vane. “I requested an e-billing solution in November 2014, we had a demo in December that year and Legal Tracker was fully in place by May 2015.”
E-billing: benefits to date and plans for further exploitation
Royal Mail has not saved money through using Legal Tracker: Barrett-Vane explains that this is because the improvements made to Royal Mail’s procedures had already cut out extraneous legal spend.
”We had already established our billing rules, law firms were familiar with them and we were rejecting the few invoices that breached them,” she says. “The main benefit of the software for us is the ability it gives us to produce accurate reports. Our reports are now so informative that the CEO and CFO have complimented us on how far we have our house in order. It also facilitates easy, centralised checking of invoices against uploaded SRFs, budgets and billing rules and we can easily reject invoices where they require correction and resubmission.”
The easy access to accurate and reliable data also means that Barrett-Vane can see exactly what each of Royal Mail’s departments and business units is spending with external lawyers. This means she can hold discussions about what might need to change, without there being any dispute over the figures.
Barrett-Vane is leaving Royal Mail to focus on assisting in-house legal teams with legal operations activities, as well as providing bid writing services to law firms. Royal Mail will now take on internal instruction management analytics, with an increasing focus on technology, in order to continue its transformational journey.
Legal operations: tips for improving processes and introducing legal tech
- Process improvements will be more effective if you have active support at a high level. Barrett-Vane attributes the effectiveness of her changes in part to the strong backing she had to put them in place and enforce them, initially from Neil Harnby, and now from Maaike de Bie. “When we introduced the SRF rule, for example, the GC reminded all lawyers that the requirement was not ‘admin’ or ‘housekeeping’ but the only acceptable way to manage the process. You need a strong GC and a strong legal operations team,” says Barrett-Vane. She also recommends spending time explaining the benefits of any new procedure to key departments such as the finance team, in order to ensure it is applied consistently: “If the finance team is not fully invested in the procedure and continues to pay bills outside the new system, for example, then you cannot record the spend.”
- Carry out process improvements before introducing technology. “I cannot emphasise enough how important it is to make as many internal improvements as possible before you introduce legal tech,” says Barrett-Vane. “Legal Tracker was the ultimate step in our process improvements, but we had made a lot of effective and worthwhile changes before introducing it. Layering legal tech over a flawed existing system will make it far less effective.”
- Before introducing technology, identify those whose input and support you need and which of them you will need to win around. “I know other in-house teams who have been prevented from introducing technology because of a lack of support from one or other business area,” says Barrett-Vane. “It seems commonly to be the IT and finance teams who need some persuasion. This is understandable, because you are trying to change their systems to accommodate legal technology, which is nothing to do with the core business and accordingly is perceived as low priority. Any teams you identify as likely to be reluctant to introduce changes should be spoken to first.”
- Maintain the flow of communication to all those teams who may be affected by the introduction of these changes. Doing so will assist in making your case and keeping people onside. ”To get the e-billing system put in place, I approached any of the teams that I thought would be impacted, or who I thought might also be able to make use of the system. So, for us that meant people from all parts of Group Legal and Compliance, IT, Finance (including Accounts Payable), Procurement and Tax. I also approached all our panel law firms and chambers early on and communicated with them throughout. All in-house lawyers came to a meeting at which the solution was explained to them. Post-implementation they were trained, guidance was issued and I held regular surgeries with Q&A sessions to ensure they felt comfortable with the system. It is important not to underestimate the impact of the changes required by the new technology on others: you need to keep people informed and on your side,” recommends Barrett-Vane. In terms of lessons learned, Barrett-Vane says: “If I had my time again, I would ideally have had more time and resources to help me introduce the system. The more time you have to plan and bring people with you on the journey, the better.”
- Do not be discouraged by delays in implementing your changes. Just as it took some time to eliminate the use of Purchase Orders, Barrett-Vane also had to wait to be able to introduce e-billing and employ a data analyst. “Do not get disheartened,” she says. “At times it can feel exhausting, but if you do not succeed the first time, you should soldier on and try again the next year.”