About

Team size: 30

Major legal advisers: Allen & Overy, Baker McKenzie, Clifford Chance, Eversheds Sutherland, Norton Rose Fulbright, Reed Smith

Appropriate fee arrangements (AFAs) are now used on 100% of Shell’s new external instructions. The overall average for AFAs – including all legacy matters – teeters between 80-85%. For context, fellow institutional heavyweight Barclays still billed on hourly rates for nearly half of its external matters as recently as 2018.

The man credited with driving much of this change is Vincent Cordo, first hired from Reed Smith back in 2015 as a global sourcing officer and since 2018 Shell’s central legal operations officer. Shell’s legal director, Donny Ching, credits Cordo with transforming its approach to AFAs.

‘The death of the billable hour can happen in all functions if people can manage and understand and appreciate the levels of seniority needed to do certain projects,’ Cordo comments. ‘Then you can bid things out and say how much you think something’s worth: right now the industry’s a little too lopsided by asking the vendors, the firms or alternative legal service providers, “What do you think it costs?” We need more data evidence to say, “Well, here’s what we know it costs.”’

That is achieved by setting key performance indicators and tracking metrics, such as whether a firm has delivered on time and budget; how partners are interacting with teams to get that done; diversity and inclusion statistics; and what the end result of a matter was. Shell also tracks and reports how many matters are going to a firm in any particular location so that it can forecast working with firms in regions where they might currently have spare capacity.

Shell has six firms on its global panel and intends to send a greater volume of work to those firms – barring any conflicts or mobility issues – following a look at working arrangements, with the outcome of a panel review expected in the next few months. In doing so, Shell expects to derive greater value and efficiencies by investing more in the relationships. ‘Costs shouldn’t just be based on what we spend but also on what it would have cost for our talent to do it as well, if we had infinite knowledge,’ Cordo comments. ‘That’s how you’re going to get to a sweet spot.’

Some of the more innovative pricing arrangements that Cordo – who leads an operations team of 30 with several pricing analysts – has introduced with panel firms include tying discount models to the oil price. A base oil price is set and if it goes below certain thresholds, Shell receives a volume level of discount to its AFA. Conversely, firms can earn back discounts as the price of crude increases. To keep it simple, the market price is looked at regularly at an agreed time every month.

‘There’s countless ways to look at pricing and firms need more assistance from clients, but firms also need to be more open because they still have the obstacle of immediate yearly payout,’ Cordo says. ‘So when we ask for that investment, there’s the challenge of: “when do we get the payout?” But that is where I’m seeing things evolve – you can get as creative as possible but need to maintain credibility with firms and the equity partners about what sort of risk appetite they have.’