Study Confirms It: Law Departments Cut Outside Counsel Spending in 2008-2009

For the first time in 10 years, in-house legal departments have reduced their overall legal spending, according to survey results released Tuesday by Hildebrandt Baker Robbins.

The survey showed a decrease in total legal spending -- by 1 percent in the U.S. and 2 percent worldwide -- between 2008 and 2009. Over the previous nine years, the survey showed U.S. increases averaging 7 percent per year.

The decline in spending was driven by a reduction in outside counsel costs, Jonathan Bellis, who chairs Hildebrandt Baker Robbins' law department consulting practice, said in a press release. More than 60 percent of the 252 participants from 22 industries decreased their spending on outside counsel, while the results indicated that departments did not cut back on internal spending and staffing.

"The survey results confirm what we are seeing every day in our consulting practice with law departments of all sizes, sectors, industries and locations," he said. "As shown in our survey last year, law departments began to adopt a wide range of management practices to reduce and control internal and external legal costs."

Rees Morrison, president of Rees Morrison Associates, a Princeton, N.J.-based law department consulting service, said that while it could be that law departments were effective in controlling outside costs, he suspects a less exciting truth.

"My guess is there was less spending on outside counsel simply because there was less business," Morrison said.

Given the state of the economy, Morrison was more surprised by the flip side of the outside counsel spending statistics -- that 40 percent of law departments actually increased their spending or at least kept it constant. Morrison added that the ratio of a company's outside spending to its revenue would be more telling.

Survey editor Lauren Chung disagreed. She told that Hildebrandt Baker Robbins' consulting work substantiates that the reduction in outside costs is a result of law departments' taking an aggressive approach on the issue. Chung said law departments are bringing more work in-house and creating billing arrangements that are more favorable to them.

Almost 30 percent of participants in the survey are companies with more than $20 billion in revenues. More than 65 percent have revenues above the Fortune 500 threshold.

The survey also provides data on law department staffing, organizations, compensation and management practices. Additional results showed that departments increased in-house spending by 1 percent -- both domestically and worldwide. For most departments, the number of lawyers increased or stayed the same between 2008 and 2009.

Spending on compensation for in-house legal staff rose 2 percent worldwide, while departments cut spending for contract and temporary staff by 12 percent and trimmed administrative expenses by 13 percent.

(Source: Corporate Counsel)

20 October 2010

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