AN ANNUAL survey from the US has reported a jump in legal department spending and outside counsel expenditure.
The Altman Weil Law Department Metrics Benchmarking Survey, compiled by LexisNexis and Martindale-Hubbell, tracked corporate law department management trends in relation to expenditures, outside counsel relationships, operations and staffing.
The survey reported total legal expenses per lawyer up 7.9 per cent for the 2004/05 financial year as compared to the previous period. The data was compiled from 138 companies, reported by sales revenue, number of corporate employees, industry type and law department size.
“Despite all the talk about finding ways to reduce outside legal spending, some law departments still appear to have a difficult time walking the walk, since the largest part of the increase was attributable to external legal fees and expenses,” Altman Weil principal James Wilber said.
“After holding the line on expenses for the past several years, we’re now seeing a significant jump. General counsel can only do so much in response to billing rate increases, and there will always be critically important work that is predominantly price insensitive.”
Total law department expenses averaged US $914,229 ($1,221,275) per lawyer for each company surveyed.
In-house law department internal operating costs increased to an average of US$332,823 ($444,571) per lawyer, a 2.6 per cent increase on the previous year. The largest internal expenditure, lawyer compensation and benefits, averaged US$258,205 ($344,951) per lawyer.
Despite rising costs, only 25.2 per cent of law departments formally evaluate their outside counsel. Lawyer staffing in corporate law departments increased in 2005, with the key measure — lawyers per billion of revenue — rising to 3.49 lawyers per billion compared with 2.93 lawyers per billion in 2004. This rise corresponded with both the number of management lawyer positions and the number of general lawyers.
Law departments continued to use traditional billing arrangements with their outside counsel. The most popular methods were hourly billing, reduced hourly billing and time and expenses. The survey showed that 40.2 per cent of reporting law departments never used alternative fee arrangements, while 35.6 per cent report negotiating non-standard fee arrangements for only the first 20 per cent of fees.
E-billing systems that allow outside counsel to electronically submit their invoices continued to rise gradually. In 2005, 13 per cent of law departments used e-billing, up from 10.3 per cent the previous year.
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