Articles Posted in Non-Law Firm Costs

The 2009 Empsight/ACC Small Law Compensation Survey reports on 146 organizations that gave text responses to a question concerning the effects of the recession. As published in the ACC Docket, Nov. 2009 at 8, several points struck me.

“Travel expenses were frequently cited as targets for reduction or elimination.” I assume this means departments tightened the belt for their own lawyers, particularly on air travel.

“In other cases a hiring freeze had been imposed, while others had essentially delayed hiring, which had the same short-run effect.” If business slumps, perhaps for some departments a freeze or a delay makes little difference in workload.

Many law departments specify in their outside counsel guidelines that if a law firm anticipates an external expenditure above a certain amount — perhaps $10,000, such as for an expert witness or storage on servers, the law firm should have the vendor bill the law department directly. Whether those payments to third parties that might otherwise flow through a law firm bill are treated as internal law department expenses or as external expenses is an open question.

I submit that the law department should treat those expenditures as external expenses.

An article in Legal Tech. News, Vol. 16, Nov. 2009 at 39, describes the environmental efforts of a 40-person law firm. It adds several ideas, and quantifies some of their benefits, to my previous collection (See my post of March 11, 2009: conservation for law departments with 7 references; and Aug. 7, 2009: 32 steps to take.).

1. The firm set a goal to reduce paper consumption by 80 percent and to use recycled paper. The recycled paper costs $1 more per ream (29% more expensive) but the firm shifted to using considerably less paper.

2. The article mentions that “everyone uses dual monitors, to increase his or her workspace.” I have written about dual monitors but only in terms of energy, not physical space (See my post of Sept. 30, 2009: monitors with 6 references.). Less space means less energy for heating and cooling.

Nearly all my posts about offshore legal resources relate to India. Still, I have mentioned similar undertakings in a number of other countries yet here is a new entrant: New Zealand (See my post of April 13, 2008: Malaysia and HSBC; Jan. 27, 2006: Mauritius and Accenture; Nov. 27, 2007: Israel; June 17, 2009: China and the Philippines; and March 6, 2009 #3: South Africa and an LPO trade group.).

A post on the Orange Rag announced that Latitude South NZ Ltd has launched a legal outsourcing offering, designed for UK in-house legal teams and law firms by using a team of New Zealand-based lawyers with UK and international experience along with a team in Singapore and an onshore presence in London.

”Latitude South claim their services will enable savings of up to 50% on substantive legal support services including professional support and know-how services, the design of standard form agreements, the drafting of bespoke documents, and peer review. Latitude South will also provide project management and legal process engineering services to help unbundle the substantive legal work appropriate for outsourcing.” Peer review?

Posts before this one have dealt with the effects of a merger mostly in terms of law department headcount (See my post of Jan. 16, 2009: layoffs after mergers with 9 references.).

Another post-method method by which companies squeeze out savings is to limit the surviving general counsel to a budget increase that is a portion of the acquired law department’s budget. Maybe the general counsel can add only 30 percent of the other department’s cost basis, maybe 40 percent. At least that limit allows the general counsel some latitude in how to achieve the cuts.

The International Chamber of Commerce studied the distribution of costs in arbitrations between arbitrator and institutional charges (hiring the judges) and lawyer fees, expenses related to witnesses and experts, and document charges (putting on the case). As reported in the NYSBA J., Vol. 81, Oct. 2009 at 21, in the breakdown 18 percent went to the arbitrators and 82 percent for the lawyers and other costs of presenting the case.

The comparable cost breakdown of dispute resolution in court would be more than 99 percent putting on the case. In other words, the transaction costs of the forum of arbitration is almost a quarter more than the legal costs (See my post of Jan. 16, 2008: arbitration with 14 references.).

Guest author Bob Unterberger sent me this item, which I edited slightly.

The UK financial giant Lloyd’s Bank is close to buying CPA Global, one of India’s largest LPOs. The New York Times reports that Lloyd’s will purchase CPA Global for about $700M. Neither Lloyd’s or CPA Global have confirmed a final deal.

The Lloyd’s-CPA Global deal occurs just as there’s an LPO industry shakeout. The smaller uncompetitive “mom and pop” LPOs are closing down. Many boutique LPOs, generally specializing in only one or two practice areas, failed to find the sweet spot. Some of India’s larger Business Process Outsourcing companies (e.g., call center providers), have shuttered their LPOs out of fear of providing poor legal services to current clients (and killing the relationship) or frustrated that the legal “cycle” doesn’t provide the immediate returns that BPO does. Or both. Finally, a handful of India’s larger stand-alone LPOs are fighting for outside funding, and many are losing the battle. It’s worth noting that the Lloyd’s-CPA Global deal puts an actual value on LPO. LPO numbers are dominated by misleading industry reports.

That quote comes from Don Liu, general counsel of Xerox, in David Galbenski, Unbound: How Entrepreneurship is Dramatically Transforming Legal Services Today (2009) at 37. His estimate seems high, but perhaps spending from the UK is included (See my post of Feb. 7, 2009: maybe 2% of companies send legal work offshore.). Perhaps Liu uses the term “outsourcing” more broadly than I understand it.

Test Liu’s claim against one scenario. If 10,000 offshore workers log an average of 1,000 hours each at $30 an hour, the annual total reaches only $3 billion, a billion less than Liu’s figure. Yet I think the LPO headcount of the largest players – UnitedLex, Pangea3, Integreon, CPA Global, to name a few of the largest groups – number more in the hundreds than the thousands, so the 10,000-person scenario is likely much too high. One thousand hours each of legal process work during the year as well as thirty dollar charges are also likely to be high. In sum, Liu’s sum may be wrong.

In the cottage industry that serves legal departments, full of small companies, a very few live in mansions. Those heavyweights are publicly-traded service providers. In that elite group, a handful provides a range of forensic, technological, and management consulting services.

In this group are CRA International (Nasdaq: CRAI), FTI Consulting Inc. (NYSE: FCN), Huron Consulting Group (Nasdaq: HURN), LECG Corporation (Nasdaq: XPRT) and Navigant Consulting (NYSE: NCI).

If a legal department finds an opportunity to retain a consulting firm and one or more of these firms are on the list, it is possible to learn a great deal more about them than about privately held competitors.

As posted on LawShucks, the National Law Journal learned from Microsoft GC Brad Smith that his law department’s budget was cut by 15 percent and head count by 5 percent. According to the piece, “[b]efore the cuts, the company’s legal department had a $900 million annual budget and 1,050 employees, 43% of them attorneys. That means approximately 53 people were cut, of which (assuming lawyers and staff were cut in proportion to their overall numbers) about 23 would have been lawyers.”

The write-up adds “The $135 million he had to cut from the budget came from the RIF, requesting (and apparently getting) fee reductions of 10%, and ‘mov[ing] farther away from the billable-hour model.’ Oh, and a healthy dose of vetting bills more closely.”

I wonder whether the Microsoft law department nets out severance costs. I also wonder whether the 10 percent discounts requested were an additional ten or were these discounts imposed for the first time?