Articles Posted in Outside Counsel

A recent survey of European law departments calculated the fully-loaded cost per lawyer hour across five industries (Chemicals, Healthcare, Manufacturing, Pharmaceuticals, and Technology), a total of 48 departments. The range was 74 euros/hour to 926 euros/hour. An astonishing range, to be sure!

The median for each of the five industries, however, only ranged between 153 euros/hr and 167 euros/hr. Median fully loaded euros per lawyer hour: Chemicals 164, Healthcare 167, Manufacturing 160, Pharma 153, and Technology 167.

Based on the medians, industry makes little difference in lawyer salaries in Europe. Despite a broad range of costs of lawyer time across departments, there does appear to be some concentration or pattern irrespective of industry. If you would like a copy of the survey result, send an email to Rees Morrison at Hildebrandt regarding the LSI survey.

DuPont has begun to require its 43 preferred law firms (PLFs) to divulge whether partners are equity or non-equity when they ask for a fee increase for partners. Since 2002, DuPont’s legal department has required its PLF’s to submit a nine-part application when they requeste a rate hikes, and as of earlier this year, firms must also list the status of partners assigned to DuPont matters.

According to an annual survey by The National Law Journal, the percentage of partners who hold non-equity status at the nation’s 250 largest law firms has nearly doubled over the last decade. Better to look at the skills and value delivered of a lawyer than at his or her status within the firm.

How can you know that blended rates are saving you money? Working with an aerospace law department, I heard a lawyer say, with no explanation, “We are saving money because X firm is giving us a blended rate.” There is no way to prove savings unless you had previously calculated the firm’s blended rate from a set of representative bills and could show that the rate you negotiated shaves that figure. (See my posts of Aug. 21 on difference between firms’ blended rates and Sept. 4, 2005 on GE and its blended billing rates from auctions.)

Without doing such a calculation, all you can hope is that the blended rate is causing the firm to delegate work down – but not too far. This is all to say, to what benefit is a blended billing rate offered by a firm?

After a four-month project in 2005, the law department of General Electric dropped more than 400 law firms, to a converged group of 94. The final surgery came after an online auction. About 142 law firms competed against each other in auctions for seven practice areas to provide GE “with their lowest rates.” (Corp. Legal Times, Sept. 2005 at pg. 31)

I’m troubled by this brief item. Billing rates – however defined – at best crudely take the measure of law firms. Did the firms give GE a blended rate? If not, did GE look at the percentage drop from “standard rates” and actually fall for that? Would GE not want the best partner to work on its behalf, yet push the firm to lowball use of that person in its bid? Breeds dishonesty, I say. Does the firm that loads its bid with paralegals understand the complexity of the work? If a firm that bids $187 an hour slips in an extra hour or two here and there, what do rates say about cost effectiveness to GE? Will firms be able to get their A-players to burn the midnight oil for GE when their realization rates will suffer?

The article’s snippet lacks enough information for someone to fully assess this step of the lopping process. What it offers reeks of procurement rigidity and per-hour-cost fixation. (See my posts on Feb. 20 and Aug. 14 about procurement and law departments.)

This law department has created a “compliance audit review process.” The second part (the first is a routine check whether the firm comports with the bank’s billing policies) assesses what the firm has done in the past year in terms of “value-added servicing: such as co-training and shared technology,

The third step is a “General Performance Questionnaire” distributed to a random selection of people who have retained a given firm during the past year. (It sounds as if clients can retain the firms on their own.) The responses to the 30-to-40 questions (too many in my experience) come back confidentially and are summarized in a spreadsheet. When speaking with the firm, the department thus has more comments to provide, all supported by hard data. Counsel to Counsel, July 2005 at pg. 7

Long ago, in 2002, the leading reason why law departments had not implemented “value-based fees,” according to a survey by Examenb, was “resistance from outside law firms.” The same refrain is sung today – “our law firms drag their heels.”

The contrapuntal tune, from law firm managing partners, sings a criticism of law departments – “our clients aren’t brave enough to venture forth.” Both sides hum with blame for the other.

I fault law departments for not pushing the agenda to cure hourly billing’s blues. They have the bucks; they have the work; they have the bully pulpit of change and the clout of Fortune 500 companies.

The Attorney-General’s Department of Australia, and specifically its Office of Legal Services Coordination, has published a solid, nicely-written document that covers all aspects of retaining outside counsel. For local, state and federal agency law departments tasked with developing a policy statement, or interested in seeing how one can be laid out, I recommend it.

A post on morepartnerincom.com (Aug. 1, 2005), a site hosted by JURIS, which offers a leading law-firm time and billing system, pulls aside the curtain. On average, law firms “take 78 days just to bill for work performed, [and] the typical firm takes 60 additional days to collect once they have finally mailed a bill to a client.”

If a partner bills 8 hours on January 1st, the firm deposits the check for that work on average the first week of June! Worse, “the typical law firm has an overall realization rate around 92%,” which means sometimes June’s check has a bite out if it. A law department offering to speed up that turnaround time might find itself saving money. (For more lessons from law firms, see my post of July 20, 2005 on law firm billing and July 30, 2005 on billing rates.)

Patrick Lamb, host of In Search of Perfect Client Service (Aug. 23, 2005) commented on my post regarding possibly-low switching costs when transferring cases. Lamb points out that a fixed fee for the remainder of the case is much more plausible than at the start. After all, Firm 2 knows quite a bit more about what happened and what is likely to happen. Excellent point, Patrick.

Reading this, it struck me that if Firm 2 takes over a group of cases it might also consider trying to hire an associate or two who worked on those cases

About 1995, Marriott International shrank its “bloated legal Rolodex” from well over 200 law firms to the ten firms that a decade later handle 90 percent of the company’s external counsel work. Such longevity and stability of key firms astounds me; it is much to the credit of law department and its key law firms.

Corporate Counsel provided these facts (Aug. 19, 2005) and added a curious additional fact. The law department’s person who “manages in-house/law firm relations” – that position, too, being atself a second unusual feature of the department – says that “she tries to send the same amount of work to each firm.” If this means that each firm receives approximately $2 million a year from Marriott (one-tenth of the $20 million a year Marriott spends on outside counsel) this third oddity even more startles me. Surely the firms are not that fungible!