As “not enough change” has been made by law firms to improve the way they do business, ANZ has appointed a tough new strategy to select its external lawyers.

ANZ has announced the 32 firms on its new legal panel, which have been prescribed certain areas they are allowed to work depending entirely on the judgement of those outsourcing that work from inside the company.

Firms including Allens Arthur Robinson, Baker & McKenzie, Blake Dawson Waldron, Maddocks, Minter Ellison, Sparke Helmore and Piper Alderman will now have to continuously provide cost-effective and high quality work under a new firm selection and billing regime implemented by the bank.

In a system not unlike eBay, about 300 regular users of external legal services within ANZ go onto an internal site and input what type of legal work is needed. The site will bring up the firms accredited in that area, based on prior selection by the company, as well as their star rating.

A rating is achieved based on the previous work that each firm has done with the company, and will give their costs. “It is about giving our internal people better information at the time when they select a law firm,” said Margaret Harrison, deputy general counsel at ANZ.

“It is a two-tier approach that we took to this new panel. It has been a long time in the thought process — 18 months at least — it is about giving out the right information for people who use legal services,” she said.

The bank has long believed that law firms are not doing enough to cut costs, nor challenging the way they do their business. “There is a sense that there is not sufficient change coming form the law firms of their own initiative, which is the view that we have taken. So this is a move to drive some change. To not only cut costs, but also to improve efficiency. Firms that are truly specialist can do things quickly as well as more cheaply,” Harrison told Lawyers Weekly.

“It is still a concern that there is nothing to control legal costs except for the market. [We] didn’t have access to a lot of market information. They were not able to see whether one firm costs $600 an hour and another firm charges $550. This is high visibility of costs,” she said.

Australia’s largest law firms have for some time come under pressure to deliver better services for less money as their clients look for new ways to reduce costs.

In a 1997 tendering process at Westpac, the bank reduced its external legal providers from 37 to 9, The Australian Financial Review reported last year. Westpac reduced this number to six, meaning that its legal bill was slashed by 35 per cent.

Harrison said that in the case of ANZ, the company had in 2001 resorted to using six main firms and three specialists. “And we found then that there were issues with convergence. Again, the people we used were inappropriate for certain types of matters — there were no cost-effective options available to people — which is why we have gone down this path.”

She agreed that 32 was a large number of firms to have on one panel, but suggested that from the 32 firms that have been appointed, there will be a whittling down through the new system. “So, for example, if someone gets one star, which is a poor [rating], people won’t use them. So the system will drive people to use the best law firms. This is why it is quite a powerful driver to save costs.”

No firms have been dropped from the “big end of town”. However, while previously firms were able to cover all areas of work, they have now been channelled into particular areas and specialisation. Harrison rejects the idea that this means firms won’t be competing, noting that there is usually more than one firm in each specialisation.

“For example, you may have Freehills and Blakes accredited for employment, and you might, for example, have other [top-tier firms] accredited for mergers and acquisitions. But it may not be Blakes and Freehills. They are in areas that we feel they have specialty, taking into account a number of other factors, which were all in the tender process,” she said. “Now they are confined to certain work types.”