William Petersen, VP and associate GC at Verizon.

When Verizon Communications Inc. selects outside law firms, two factors weigh heavily in the decision-making process: cost and diversity.

The telecommunications behemoth has been able to move in the right direction in both areas because of a bidding process in which firms make the case for why they should win the work, says William Petersen, senior vice president and deputy general counsel in charge of litigation at Verizon.

The process begins with an informal prescreening phase, says Petersen. “We have a group of what I think of as preferred providers, firms that we regularly work with … that we're very confident are going to deliver really excellent work,” he explains. That list, which Petersen says is not static, is the starting point, though there are some instances in which a member of Verizon's litigation team, which includes 20 lawyers, may push to add a firm not on the list to the mix.

From there, anywhere from three to five firms are invited to bid on a matter, Petersen continues, adding that, while not an exhaustive list, current go-to firms include: Kellogg, Hansen, Todd, Figel & Frederick; Munger, Tolles & Olson; Morgan, Lewis & Bockius; and McGuireWoods.

Because firms are prescreened, lawyering excellence is a given, according to Petersen, so it's other aspects of a bid that distinguish one firm from others. Where a firm can stand out, for instance, is in getting “creative in how they propose to charge us,” Petersen says. This may include a proposed flat fee, a flat fee for certain sections of a case or a flat fee with a collar, Petersen offers as examples. Verizon isn't generally interested in hourly billing, notes Petersen, except on rare occasions, such as when a firm has very specific expertise. “To us, the hourly model just feels almost a little adversarial,” he says. “In-house lawyers are reviewing bills and are asking their outside counsel: 'Well, why were there five people at this meeting? Why did you use a junior partner here instead of an associate?' To me, that's always felt almost disrespectful to the firms. … I want them to have the freedom to manage the cases the way they want to, consistent with providing excellent work to us.”

Petersen notes that the bidding process also allows Verizon to reward firms that have worked hard on diversity. “What we really want is diverse lawyers to be actively engaged and to be part of the case in a very meaningful and substantial way,” he says. To show how this process plays out, Petersen points to a recent “complicated dispute” in which there was concern that there could be collateral consequences depending on how the litigation went. One bidder's price was two and half times higher than the lowest bid, he says, and the lowest bidder seemed to “not completely understand the complexity of the case.”

The firm selected was the second-lowest bidder, Petersen says. “It was a firm that not only, as with all the firms, we felt comfortable with, but it was also a firm that really seemed to appreciate the subtleties of the case and the potential impact the case could have in other ways. And then that firm also provided us with a very, very diverse team that was going to work on the case … what really won the bid for them, more than anything else, was the diversity.”

This method for selecting outside counsel was first used with intellectual property matters before it was expanded to all other types of litigation, Petersen says. And while not all work at this point goes through the bidding model, that's the direction the legal department is headed as it allows for deeper relationships with fewer firms, cost savings and a big jump in diversity. “Since we have put this process in place, we have more than doubled our percentage of spending with diverse lawyers,” Petersen says.

“We still have a lot more work to do, but we're very encouraged by the direction.”