A report of The Fraser Institute [info@fraserinstitute.ca], “The State of Canadian Judicial Statistics: Trends in Canadian Civil Justice,” summarizes findings from a 1995 survey of about 50 Canadian inside counsel. They assembled the costs of a representative case (pg. 20; all figures Canadian dollars) with the components averaging:
$101,860 outside counsel
22,800 inside counsel on average taking 223 hours [Rees Morrison: $100/hr implied rate]
“The State of Canadian Judicial Statistics: Trends in Canadian Civil Justice,” a report by three authors at The Fraser Institute [info@fraserinstitute.ca] presents data on the average annual (inflation adjusted) growth of civil legal spending by business over the 20 year period. The annual increase was 0.9% (pg 3). Making up that aggregate figure were declines in 1974-80 of -0.1% and in 1987-94 of -3.4% and increases in 1980-87 of 7.0% (pg. 5).
The authors calculated that business accounted for 35% of the CDN$11 billion spent in 1993 on civil legal services (pg. 4).
This report admirably collects and analyzes data. For example, it calculates the average cost per trial in Ontario and British Columbia courts – CDN$14,400 and CDN$18,000, respectively in 1993/94. They extensively discuss alternative dispute resolution in terms of comparative economics.
When the accountants for Adecco, a $20 billion temp agency, said they were not prepared to sign the company’s accounts for 2003 because there were material weaknesses, they triggered a $120 million accounting and legal review. [Economist, May 21, 2005 at pg. 72]
At one point, “there were three sets of lawyers employed to cover the accountants’ backs, checking that their work would not lead to lawsuits after the fact. The bills of 15 different law firms, pricing their services at rates of up to $800 an hour, were paid by Adecco. According to a senior executive, the firms were “charging like raging bulls. It was a fee fest.”
Two observations: SOX legal compliance can cost dearly. Second, should a law department, whose budget is busted by such an unforeseeable expense, create a separate general ledger account for the charges?
Would litigation costs drop if clients had to pour their own time and effort down the litigation drain? Stated differently, if clients can lob a law suit over the fence into the legal patch, and never think of it again, the company loses a governor on the accelerator of litigation costs.
Assume for major cases the business unit must assign a manager to attend hearings, work on discovery documents, report on costs and otherwise incur costs. [See my post on April 18, 2005 (6) about an assigned project manager.] The involvement should create more pressure to resolve the dispute promptly. Might not a business mindset prevail over a litigator’s quest? After all, a law suit is a problem for the entire company, not just for a responsible in-house counsel handling it.
Many U.S. companies, having been granted an original U.S. patent, prosecute it in other countries. It would not be unusual to see fifteen to twenty foreign filings for every domestic patent, with many of those filings requiring translation. When patents have ten or more pages explaining such necessities as claims and prior art, and when translation costs upwards of $50 for every page, a ten page U.S. patent in eight languages would cost for translation alone approximately $4,000.
File foreign patents only where the business case justifies the cost, look for excessive text that drives translation costs up, and explore consolidating your foreign language services with fewer translation companies.
The ABA some years ago pegged a law firm attorney’s average turnover cost – the cost of replacement – at $100,000. That cost included, I suppose, executive search fees, time spent by partners interviewing, new-hire expenses, and ramp-up inefficiencies.
Bear with me while I translate to law departments and make some assumptions. If a law department loses a lawyer who had worked there, say, five years, earning $150,000, search fees could be $50,000. Internal time, including Human Resources, could be 30-50 hours, which at a fully-loaded internal cost of $150 an hour, would approximate $6,000. Relocation fees, bonus for joining add more (I will SWAG $20,000); but inefficiency at the start costs the most: 50 percent effective the first two months; 75 percent the next three months? At $15,000 per month (benefits of 30% on top of salary), the start-up loss amounts to $15, 000 for two months and $12,000 for three, or a total of $27,000.
Headhunter fees, interviewing and scheduling time, relo and signing, coming up to speed – the total of these back-of-the-envelope guesses amount to $103,000. The wallet aches.
A press release by Celent [www.celent.com/PressReleases/20031229(2)/ClaimsLitigation.htm] noted “typical savings” from electronic invoice processing: “2-5% of total invoiced initially, 8-10% after tuning of rules.” For this posting, I have no view on those savings estimates, but I do wonder whether a law department can claim whatever savings are identified on out into the future.
What if in year one, with a rules-based e-billing package, a law department spots and disallows eight percent of the total amount of law firm invoices it receives? What if the firms that billed improperly or excessively corrected all the disallowed practices in year two – and the total invoice payments stayed flat, i.e., 8 percent below the first year’s original invoices’ total amount? Is it legitimate to claim a savings of 8 percent for year two? The net present value of savings extrapolated into the future at 8 percent of billings would be impressive, but a dubious reality. [See my post on April 14, 2005 about European firms and e-billing.]
Beyond this one hypothetical, what is a reasonable way to calculate savings from a practice (think budgeting, ECA, naming staff, holding rates constant) if law firms change their behavior to comply with the practice?
A long piece by Than N. Luu, entitled “Reducing the Costs of Civil Litigation,”” [http://w3.uchastings.edu/plri/fal95tex/cstslit.html] suggested a way litigants – which I read as opposing parties, not co-parties — could reduce their overall costs. They could “handle imaging and photocopying by copying their documents with the same company and [at] the same time for an additional price break.” Similarly, they could save money “by sharing the costs of document numbering services, inventory indexing, hiring stenographers and court reporters, and calling neutral experts.” [See my post on March 5, 2005 about a blog on e-discovery.]
My humble thought: don’t shave disbursement costs, resolve the dispute.
A recent blog by Walter Olson about lawsuit cash advances, and the NY Times article it cites, ought to give pause to in-house litigators. If “legal finance” companies thrive by offering injury claimants cold cash up front, companies will face more lawsuits. And, why stop with injury claimants when other kinds of claimants seek dollar damages?
What has attracted attention so far are the usurious fees charged plaintiffs by the financers, but the stealth threat to law departments comes from the increased number of cases financing could prompt.
The website for LegalMetrict (www.legalmetric.com/judgereport/calc.cgi) makes it appear easy for a law department litigator to calculate the present value of a lawsuit’s projected gain or loss. Online you can fill in the annual cost of money, the average cost of the lawsuit per month and its expected duration, as well as the expected recovery or loss. The math is easy, but the figures you enter are increasingly hard to pin down. How long will a lawsuit last? What will you end up paying or recovering?
The site helps with the sheer math. What might help with realism are some kind of confidence ranges.
Law Department Management Blog