Corporate law departments are increasing their internal budgets, hiring more lawyers and paralegals to staff those departments and decreasing their use of outside counsel according to the newly released 2010 Chief Legal Officer Survey.
Sixty-three percent of Chief Legal Officers (CLOs) surveyed in September and October indicated that they had increased their internal budgets from 2009 to 2010.
Forty-one percent plan to hire new in-house lawyers in the next twelve months and 32 percent will increase the number of paralegals on staff.
In the same time period, 29 percent plan to decrease their use of outside counsel.
“These results highlight a shift of perspective among CLOs,” explains Altman Weil principal Daniel J. DiLucchio. “Law departments are still going to rely on outside counsel for many things, but they are increasingly serious about finding more cost-effective ways to serve their clients — and that includes adding more internal resources.”
Law departments continue to increase their use of alternative fee arrangements (AFAs) according to the survey.
In 2009, 77 percent of CLOs used at least some alternative pricing for work done by outside counsel, while, in 2010, 81 percent report that they will do so.
On average, 11.9 percent of outside counsel fees were based on non-hourly pricing in 2009. CLOs estimated 14.5 percent of fees will have a non-hourly basis in 2010.
When asked why they don’t always request alternative fee arrangements, almost half of CLOs replied that non-hourly pricing was not appropriate for all types of matters, including litigation, specialty work, and urgent matters.
Another 17 percent cited times when the scope of a matter was too unpredictable. Fourteen percent indicated that they either don’t believe non-hourly pricing saves money, or they don’t yet understand how AFAs work.
Only 3 percent reported that law firms were resistant to alternative fees.
“The use of AFAs continues to grow, but they are still not as well understood or as effective as they might be,” according to DiLucchio. “Not until law departments develop robust analytical data on costs will they have the structure, discipline and especially confidence to routinely engage law firms on a non-hourly basis.”
For the second year in a row, CLOs were asked to rate how much pressure corporations are putting on law firms to change the value proposition in service delivery; and in turn how serious law firms are about changing their service delivery model.
The survey found no change from the 2009 results.
Law departments assessed their own desire for change at a median of five on a scale of zero to ten and scored law firms at a dismal three on the same scale.
“Clearly CLOs believe there is still a long way to go to change the traditional business model that has been practiced by law departments and their law firms for decades,” observes DiLucchio.
The survey also measured various emerging trends making news in the marketplace in 2010 and found:
• 61 percent of law departments have preferred provider lists.
• 32 percent plan to decrease the number of law firms they use in the next twelve months.
• 23 percent of departments are currently providing project management training to their lawyers or plan to do so in the next twelve months.
• Corporate purchasing professionals are involved in 19 percent of outside counsel selection decisions, although only in an advisory role.
• 15 percent of law departments are offshoring legal work and 12 percent are offshoring non-lawyer functions in 2010.
• Only 5 percent of CLOs report that they do not allow first and second year law firm associates to work on their matters.
The survey has been conducted and published annually by Altman Weil, Inc. since 2000.
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