In-house lawyers feeling the pinch as companies seek to save dollars

In-house legal departments and general counsels in Australia and New Zealand are under pressure to decrease costs and expenditure, according to the 2010 Legal Department Benchmarking Report.

More than half of all respondents (63%) reported some pressure to reduce total legal department costs, with 42% of those reporting significant or very significant pressure, in the Australian Corporate Lawyers Association (ACLA) and Corporate Lawyers Association of New Zealand (CLANZ) report.

Large legal departments (those with 10 or more lawyers) were more likely to report pressures to reduce costs than smaller legal departments (those with only one to four lawyers). 76% of general counsels also reported being under pressure to reduce costs. “There is a lot that legal departments and their law firms can do together to contain and reduce their legal expenditures,” said Richard Stock, partner at Catalyst Consulting and in-house consultant.

The report recommends legal departments “set a goal” to reduce the average rate paid to law firms by 10% over the next financial year, through “in-sourcing, bundling routine work for fixed fees, set rates and partner/non partner ratios and re-configuring law firm work teams.”

Stock suggests legal departments also rethink how many law firm relationships they require, and whether requirements can be met by fewer firms doing more of the work, as a way of achieving lower legal costs. While a majority of small legal departments use one to two firms for legal work, 50% of large legal departments use three to four firms. “For the most part, law firms are being used for litigation and regulatory work. What it means is that the specialty argument doesn’t hold up when deciding how many firms to use,” said Stock.

Regardless of how many firms a legal department uses, Stock said basic questions surrounding costs and time should be asked on a matter-by-matter basis. “The law firms should be asked, who is going to do it, how long is it going to take, and how much will it cost. Our survey shows that we are getting not even a third of legal departments requesting that level of detail.” He added: “You need to reduce the amount you buy - the only way you can do that is with a detailed budget for the amounts you buy.”

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