Balfour Beatty GC: Outside track

Taking a radical approach to outsourcing helped Chris Vaughan, GC at infrastructure giant Balfour Beatty, build a legal function fit for a complicated world

When Balfour Beatty general counsel Chris Vaughan arrived at the company five years ago, inheriting a diverse group of external firms totalling around 200 globally, he did the usual things. There was a panel review, negotiations on discounts and fixed fees, and a reduction in the number of panel firms to around 10.

That was all well and good, until Vaughan observed that the “significant” legal spend generated by the infrastructure business, which is contract and claims-intensive, was not really dropping.

“It’s quite difficult to do more than that without thinking differently,” Vaughan explains. “I noticed that, despite doing all these things I thought were best practice, our legal spend wasn’t going down – it was actually going up.”

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Vaughan decided to look at the legal function through an outsourcing lens, something the company does a lot of anyway. He carried out a detailed review of the spend, looking at individual matters and the time spent on issues by partners and associates, and set out to tender work in “parcels” such as property and employment.

But as that process developed, the thinking changed again.

“As we looked at the numbers it became clear we had to do something a bit more radical and put our ‘business as usual’ legal work in one place,” Vaughan explains.

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Pinsents movement

In March Balfour Beatty unveiled a three-year exclusive deal with Pinsent Masons. The firm is getting all the company’s day-to-day legal work in the UK including property, employment, construction, commercial contracts and small claims at a fixed fee. The work accounts for about a quarter of all Balfour Beatty’s £20m-plus annual legal spend.

“The risk to me is that the number of matters we have in the business as usual category falls; for them it’s that it takes longer than they think to do it,” Vaughan says.

He adds that the deal is intended to make Pinsents more efficient in the way it does the work, but is also likely to lead to the firm picking up more high-value, complex matters.

A firm taking on such a role needs to be innovative and proactive, Vaughan says, noting that his deal with Pinsents is not the first such arrangement by a large business, but is in the vanguard of a new way of providing legal advice.

“They need to focus not on how many chargeable hours they can charge a client but on the efficiency of their service” he adds, pointing out that key to the success of such a deal is a firm’s ability to allocate the right task to the right person, reducing partner hours and using technology appropriately.

Vaughan hopes to get more out of the deal than just increased efficiency and lower legal spend.

“The thing I’m really interested in is how I can use the information that comes out of it to help me run the business efficiently and manage legal and business risk,” he says.

Wide view

This fits right into Vaughan’s remit. Not only is he general counsel for Balfour Beatty, he is also in charge of the company’s secretarial functions, ethics and compliance, corporate affairs and corporate communications. He picked up the non-legal aspects over a couple of years after joining and was named chief corporate officer in 2011.

“The logic for the job is that a lot of the work I do on the legal side is about managing risk and reputation,” Vaughan says. “If you can pull together the management of legal risk and reputation, and the company’s focus on stopping things happening before they become a problem you can pull all that together in a corporate reputation management job.”

As part of that, Balfour Beatty has pushed hard on ethics and compliance – starting with a code of conduct a few years ago, but including guidelines on anti-bribery, anti-fraud, professional conduct and workplace bullying. Social media and data protection are current top-of-the-agenda issues. Vaughan, who sees the role of a modern general counsel as the conscience of a company, speaks to employees a lot about these issues.

“It’s more than just complying with the law, it’s about how we go about our business,” he says. “Lawyers have a particular outlook on business that gives them the position of being able to enforce it in a positive way.”

Getting the right people in helps, according to Vaughan. In the 60-strong legal team, seven divisional general counsel are in day-to-day control of their own work and report to divisional chief executives while having a functional reporting line to Vaughan. Like Vaughan, who sits on the company’s executive committee, divisional general counsel sit on their divisional executives and play a similar role.

In terms of his own role, learning how the non-legal functions of the business worked was the biggest challenge, Vaughan says.

“I instinctively knew what a good legal function looked like, but I didn’t instinctively know what a good communications function or communications director looked like,” he admits. “It’s about understanding the value that any function can add to the business.”

Value will remain a key issue for Balfour Beatty, both in the legal function and more widely. A drop in government procurement work has led to the UK business struggling, while the company is involved on a growing range of projects globally in both developed and emerging markets, giving rise to a wide range of potential risks. While the short-term outlook is difficult, in the longer run Vaughan is positive.

“We’re in the international infrastructure space, which is a good place to be for the medium term,” he says. “We’re trying to position ourselves to take advantage of growth as and when it comes.”

Certainly, the legal team, with its revamped approach to instructing external counsel, is well-positioned to deliver the best value possible.

Chris Vaughan, Balfour Beatty

Position: General counsel and chief corporate officer

Reporting to: Chief executive Andrew McNaughton

Employees: 50,000

Revenue: £11bn

Annual legal spend: £20m

Total legal capacity: 60

Main external law firms: Pinsent Masons (‘business as usual’), Allen & Overy, Berwin Leighton Paisner, Eversheds, Pinsent Masons (complex matters)

Amy Chapman, group legal director, Mace

Chapman

Mace is an innovative construction company working across 12 sectors in various legal jurisdictions. This keeps the legal team on its toes. There is never a dull day and the team supports global projects that arise from five major hubs in the UK, Hong Kong, New York, Johannesburg and Dubai and Qatar.

There are many challenges when setting up major programmes such as the Kingdom Tower in Abu Dhabi or the Gutenberg housing project in St Petersburg. These include finding the right local legal advice and ensuring consistency of service in countries with very different cultures and legal systems.

In the UK it’s still a tough market. Issues for my team centre around sub-contractor insolvency and the consequences, dealing with insolvency practitioners and arranging for novations and assignments of existing contracts as well as helping project teams keep projects on track.

Public sector procurement issues keep our project and construction management teams busy. Unsuccessful contractors

are increasingly aware of the opportunities to challenge contract awards. The procurement rules are a minefield for the unwary.

Generally, there is a hardening in the market in terms of contracting conditions put forward by clients and funders so it has become more difficult to maintain a fair balance of risk.

However, these issues do not detract from the sense of achievement in seeing the successful delivery of our projects such as the Shard and the London Emirates Air Line cable car.

Everywhere you go in London you hear people discussing the Shard – it makes me proud.

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