Articles Posted in Non-Law Firm Costs

The 2005 Hildebrandt Law Department Survey reports the figure of $192 per hour per lawyer, fully loaded. You can do several things with your own number. You can look at the blended hourly rates of your outside counsel and match them to the fully-loaded cost of your inside lawyers, (See my post of Sept. 5, 2005 on European law departments at about $220 an hour, Sept. 25, 2005 about using 1,850 chargeable hours as a proxy, and Oct. 18, 2005 on how to calculate your figure.)

You can track the cost over the years and see how it changes with revenue or the Consumer Price Index. You can even figure the cost for your various business lawyer groups or specialty groups, after making some assumptions about shared overhead.

An article in GC New York, Nov. 14, 2005 at 13, 21 explaining the term “fixed (flat) fees” gave examples only of phases in a specific law suit, such as $25,000 for discovery. It defined a “retainer” as where the client “engages the firm to handle all litigation for an agreed upon price either by matter or by time period.” Hence, $3,000 per case or $1.2 million for all cases handled in 2006.

My understanding of these terms diverges. Fixed fees can apply to portions or phases of a matter, agreed, but they can also apply to entire matters or bundles of matters.

As to retainers, a law department might agree to pay a fixed amount each month to a firm as a retainer, but at some time the two sides reconcile against actual fees and costs incurred by the firm. A retainer helps the cash flow of the firm, and might allow a prompt payment discount for the law department. A retainer does not imply flat or fixed fees. (See also my post of Aug. 26, 2005 about yawns from law departments on retainers paid quarterly in advance and Oct. 14 on retainers and prompt payment.)

Bob Peahl, VP Claims Litigation Management of AIG, spoke at ACC’s 2005 Annual Meeting. To set the stage for his talk on law-firm performance management, he stated that in North America, property and casualty claims relied on 2,000 law firms and 34,000 timekeepers. This army, together with 5,000 AIG claims people, handled 100,000 matters and spent more than $1 billion.

Peahl’s group agrees with the law firm handling a claim at least three criteria at the start of the engagement, of which two must be objective measures. The criteria include duration, outcome, guidelines compliance, communication, and cost (See my post of Nov. 14, 2005 on total cost of outcome.), strategic performance, and client satisfaction. AIG weights each criteria and fixes payments to firms based on a formula that takes into account performance against target.

Motorola “has outsourced its in-house patent-generating work to small Indian firms,” according to an article in The Lawyer, Oct. 31, 2005. (See my post of Nov.13, 2005 on Motorola previously re-configuring its in-house patent group.)

A piece on the website of OutsourcingCenter (May 2005) l mentioned some other Indian providers of legal services, such as Atlas Legal Research and Xansa. It also mentions that India graduates 298,000 students from law school every year (as compared to about 38,000 from US law schools).

For other 2005 posts about offshoring see mine on the size of the legal off-shoring market (June 15 and May 20), sharing the savings with law departments (June 15), and comparative costs (Sept. 27).

For 12 months starting in 1992, a team of nine Dow Chemical employees analyzed each of the company’s 30,000 patents. The team, which almost certainly included a patent lawyer, determined “whether the technology was being practiced and whether it had potential business use.” By the end, from abandoning certain patents, Dow saved $40 million (Corp. Legal Times, Vol. 15, Nov. 2005 at 27).

Every company that owns a non-trivial portfolio of patents should every few years go through a pruning exercise. Alternatively, scrutinize some portion of the portfolio every year. Doing so combines the talents of different people – law, business, economics, and technology – but drops dollars to the bottom line.

A British food manufacturer, RHM, with annual sales of more than £1.5 billion ($2.6 billion) recently reviewed its legal advisors and selected a four-firm panel (Legal Week, Vol. 7, Oct. 27, 2005 at 3). If it were a US company of that size and industry, RHM’s total legal spend would be around 0.3 percent of its revenue ($8 million or so), of which a bit more than half would go to outside counsel. By that estimation, the four firms will average around a million dollars of work a year.

The article also explained that two “City firms” will handle the company’s main “corporate work,” with the other two “national” firms will handle day-to-day “commercial work.” I have seen that distinction before. M&A, corporate governance, corporate secretary, and major litigation falls in the “corporate” camp; contracts, routine legal questions, employment issues and the like fall in the “commercial.” Corporate work has more prestige than commercial work.

A previous post opined on open cubicles for lawyers (See my post of Feb. 20, 2005.), so I was glad to read about the law department at SEI Investment Co. and its completely mobile desks, which lock into place with casters (GC Mid-Atlantic, Oct. 2005 at 25).

What really caught my eye was the statement that the “38-member legal department occupies a space roughly 50 feet by 75 feet.” For those with a penchant for metrics, the approximately 3,750 square feet gives each of the those members about 98 square feet, or a 10 by ten office – if there were no conference rooms, hallways, file room areas, or other uses of the space.

For best-in-class law departments, diligently seeking optimal practices, cram your staff into the first quartile – nay, first decile – space of sub-hundred square feet per legal department member! Or, if you prefer, 220 square feet per lawyer (SEI has 17 in-house lawyers).

Lawyers are called ex pats (from the Latin, ex patria, from one’s country) when they are transferred from their home country to practice law in an office in a foreign country (See my posts of Oct. 10, 2005 on costs and April 27, 2005 on second languages required for Kodak lawyers.).

Some law departments choose this route, in favor of hiring local internal or external lawyers, because they want to assure themselves of US legal knowledge and standards of practice. The costs, however, are notoriously high. There are such additional supplements as paying for private education for children, paying for western-style housing where it may be expensive, paying for trips back to the mother country periodically, paying to make up for tax-rate differentials, and many other additional costs. Some people have estimated that ex pats cost two to three times as much as they would cost in their home country.

A previous post described the reluctance some prestigious clients have to push their primary law firms to reduce costs. Don’t big companies wield big clout? William Ohlemeyer, Altria’s litigation chief (Corp. Counsel, Vol. 12, Nov. 2005 at 92), bursts that bubble.

“There’s been a misconception, especially in the last five years, that there’s a buyers’ market for legal services. That’s not true.” From his perspective, with the increase in high-stakes litigation, all the big companies are competing for the same group of prominent litigators. (See my post of July 30, 2005 about concerns by even large law departments.) With mergers of large firms taking place at the current pace, the sellers’ market might tighten further.

Casemaker is an online legal research program provided free to lawyer-members of Consortium states. Each member bar shares its library with all the other members’ bars. “The goal of Casemaker is to take care of 90% of lawyers’ research needs 90% of the time.” For more information, see the Georgia Bar Association website.

The Corporate Counsel Net appears to cost about $1,000 to $3,000 a year but provides a huge amount of information in securities and corporate finance law.

Over time, more and more practice information will be available for free or at low cost on the Web, and search engine tools will improve – perhaps even being optimized for legal research with built in thesauruses of legal terms. Information as a commodity will profoundly shape the practice of law within and without the corporate walls.