The 2007 ACC/Serengeti Managing Outside Counsel Survey was conducted for the ACC by Serengeti, provider of Serengeti Tracker, rated the top system for e-billing and matter management by the General Counsel Roundtable. Hundreds of ACC member law departments share their experiences in the sixth annual report, which is available at a special discount to ACC members. This year’s report has detailed data regarding the high, low, and average hourly rates paid by ACC members for specific types of legal work in major metropolitan areas.
JANUARY 2007
| Higher Percentage of Company Revenues Going to Outside Counsel | The average percentage of company revenues spent on outside counsel was .38% in 2006, up significantly from the past two years (.28% in 2005 and .27% in 2004). This year’s percentage of revenues going to outside counsel is near the highest level of the past seven years (.40% in 2003). |
| Gap Narrows Between Outside Legal Spending and Law Department Spending | Historically, spending on outside counsel has been about double the spending on law departments. However, the ratio of outside to in-house spending has narrowed during the past two years, from 2.0 in 2004 to 1.8 in 2005, to 1.6 in 2006. |
| Smaller Companies Spend Much Greater Percentage of Revenues on Outside Counsel | On average, small companies (up to $100M in annual revenues) spend 1.38% of their revenues on outside counsel. For medium companies ($100M to $1B in revenues), the corresponding percentage is much lower at .39%, and for larger companies (over $1B in revenues) even lower at .10%. |
| Higher Rate of Increase in Outside Counsel Hourly Rates | The rate of increase in hourly rates was higher this year, back just above the level of two years ago. During 2006 hourly rates increased on average 6.0%, up from 5.2% in 2005 and 5.7% in 2004. In-house counsel predict that hourly rates will continue to increase by an average of 6.3% during 2007 (up from last year’s projection of an increase of 4.8% for 2006). However, in-house counsel have consistently underestimated the increase in hourly rates for the coming year. |
| Convergence Process Remains Constant | Many in-house counsel believe that convergence (i.e., reducing the number of law firms with which a company works on a regular basis) is an effective way to control legal spending. The percentage of law departments engaged in convergence has remained fairly constant at around one-fourth (30.4% in 2006). About three-fourths of in-house counsel involved in convergence (71%) state that the strategy met their expectations, with a significant minority stating that the process did not meet expectations (20%), and a much smaller number stating that it exceeded expectations (9%). |
MARCH 2007
| For Third Year, Compliance Overtakes Reducing Outside Legal Costs as Top Priority of In-house Counsel | For the third year in a row, “Keeping apprised of company activities that have legal implications” was the top concern of in-house counsel. “Reducing outside legal spending” was second after being the no.1 priority during the prior four years. Rounding out the top five this year are: keeping management apprised of legal developments; too much work for too little resources/legal budget; and staying apprised of changes in the law. |
| Most Law Departments Required to Provide Periodic Compliance Reports Monthly or Quarterly | Approximately 90% of law departments are required to issue periodic reports regarding legal spending, unbilled time accruals, liability exposure, status of legal matters, and results achieved in legal projects. Depending upon the specific type of information, generally more than two-thirds of law departments must report on each of these areas either monthly or quarterly, with a minority reporting annually. |
| Law Departments Provide Immediate Updates on Material Developments | In addition to the above reports, nearly three-fourths of law departments (73%) must also provide supplemental reports regarding material developments regarding such information. Of those who are subject to such requirements, a majority (72%) must report material developments within one to ten days. |
| Challenges of Manual Collection of Compliance Information from Outside Counsel | Most law departments are manually processing information from outside counsel (emails, phone calls, etc.) to prepare the above compliance reports, although a growing number (12%) are collecting data directly from shared matter management systems. The most common controls on the information collection process are: reminders if information is not provided (57%); refusal to pay bills if information is missing (43%), and regularly scheduled requests to outside counsel (41%). |
| Majority of Law Departments Lack Specified Internal System Controls | Less than half of law departments have the following specific internal controls for validating the accuracy of the data in their compliance reports: audit trail of changes to reporting data (18%); verification that data has been correctly entered (23%); and verification of spreadsheet formulas (10%). |
May 2007
| Increase in Percentage of Company Revenues Spent on Law Departments | After two years of decreases, companies spent a higher percentage of their revenues (.20%) on their internal law departments, falling well within the range of the years prior to 2005 (an average of .18% in 2005, .23% in 2004 and .25% in 2003). Small companies (less than $100 million in annual revenues) continue to spend a much higher percentage of their revenues on their law departments (1.33%), compared to medium companies ($100 million -$1 billion in revenues: .19%) and large companies (over $1 billion in revenues: .07%). |
| Projected Increase for Law Departments Greater than Increase for Outside Counsel | The projected increase in law department spending for 2007 is 6%, slightly greater than the projected increase of 5% in spending on outside counsel. |
| Competitive Bidding | The practice of issuing a request for bids is used by a minority of in-house counsel and is staying constant, with about 24% of in-house counsel having issued at least one RFP to law firms during the past year. Comparing the total number of bid requests to the total number of law firm responses, there were on average less than three responses for every bid request issued, a reason why competitive bids are not more common. |
| Minimum Associate Experience Required | The costs of inexperienced law firm associates have become a management issue for an increasing number of in-house counsel. About 58% of law departments now require a minimum level of associate experience. The average level of associate experience required increased significantly this year to a majority after being at around one-fourth in prior years (25% in 2006, 24% in 2005 and 2004 and 26% in 2003). |
| Methods to Control Outside Legal Spending | The most common methods to control outside legal spending used by in-house counsel are: case/matter budgets (59.3%), discounted/alternative fees (54.4%), re-allocation of work to firms with lower rates (51.7%), billing guidelines/spending rules (47.9%), and evaluations of outside counsel (39.9%). |
