Ninth Annual ACC/Serengeti ‘Managing Outside Counsel Survey’ Reveals In-House Counsel are Looking for Innovative, Value-Driven Solutions

Posted: Oct 19, 2009

(Boston, MA/Washington, D.C.) - For the first time in three years, controlling spending on outside counsel has returned as the top priority for in-house counsel, topping compliance concerns, according to the results of the 2009 ACC/Serengeti Managing Outside Counsel Survey, a collaboration between the Association of Corporate Counsel (ACC) and Serengeti Law, released at ACC’s Annual Meeting, October 19 in Boston, MA.  While compliance issues had reigned for three years, economic factors from the past year have altered the key focus for in-house counsel. The need to drive efficiency is leading to more value-based policies to reduce overall legal spend.  Such policies include requiring minimum levels of associate experience, discounts for early payment of bills, engaging in RFPs, and reducing the number of law firms representing the company. For those firms they retain, clients are looking to negotiate more flexible value-based fee and service models.

Responsiveness is the key deliverable now expected of outside counsel.  With new data this year related to the ACC Value Challenge, an initiative to reconnect the cost of legal services with value, it is important to note that the majority of in-house counsel (69.9%) provided specific suggestions to their outside counsel to increase the value of their services. While hourly rates are still the norm, use of alternative fee structures rose to 61% of in-house counsel.  In particular, fixed fees (38.0% of in-house counsel), project retainers (15.4%) and contingency fees (10.5%) are increasingly popular alternatives. Furthermore, for next year, in-house counsel predict no increase in hourly rates – a first ever in the nine years of the survey.

“The tough economic times have added urgency to the continuing client push for better value from their firms,” says ACC President Frederick J. Krebs.  He adds, “In-house counsel and law firms must communicate about how to improve service and explore new ways to efficiently managing legal costs.”

A final trend worth highlighting this year is the continued movement to Internet-based systems to help clients manage and predict costs more accurately.  More than half (51.3%) of in-house counsel this year report they are planning to adopt Internet-based systems to work directly with their outside counsel.  These systems, which are hosted by vendors and run by law departments, are quickly replacing the previous movement towards law firm extranets (down to 8.7% of in-house counsel having used any extranets this year, compared to 10.4% last year).

“In-house counsel want a single online system where they can manage all of their legal work directly with all of their outside counsel worldwide, not a maze of different law firm extranets or internal systems that don’t connect with outside counsel,” says Serengeti’s Rob Thomas, the author of the survey report.  Thomas adds, “The latest online matter management/e-billing systems give in-house counsel a practical way not only to track their spending and results, but also to evaluate the relative value provided by their outside counsel.  With this new information, in-house counsel are assigning more work to outside counsel who are offering the most value.  They are also creating alternative fee arrangements that align the interests of both in-house and outside counsel by rewarding more efficient, more effective performance.”

Since its inception nine years ago, more than 2,000 law departments have completed the ACC/Serengeti survey, describing their experiences working with outside counsel.  Each year, hundreds of law departments provide new information, making the survey report a true living document. Although new information comes from different law departments each year, in-house counsel have generally been very consistent across different time periods, with clear trends over multiple years.  This year, a series of questions was added related to the ACC Value Challenge. The following general conclusions represent some of the more significant areas of change, as well as some of the constants, since 2000.

Controlling outside counsel spending moved back into the position as the top concern of in-house counsel for the first time in three years, topping concerns over legal compliance.

When asked the top five most pressing issues facing their law departments, “reducing outside legal spending” was the top concern, cited by 80.5% of this year’s respondents.  Sarbanes-Oxley and other legal compliance requirements fell to a close second (78.2%), while concerns about reduced legal budgets/having too much work for fewer resources came in third (60.3%).  Rounding out the top five were “keeping management apprised of legal developments” (60.0%) and “staying apprised of changes in the law” (54.1%). 

In-house counsel have shown unprecedented success in containing increases in outside legal spending, as well as increases to hourly rates.  They predict even more success during the coming year.

With the focus on reducing outside counsel spending, the median change in aggregate outside legal spending this past year was no change, the smallest in the history of the survey.  Similarly, the actual increase in hourly rates this past year was for the first time lower than had been predicted the prior year (an increase of 4.76% after a prediction of 5.02%).  This is also the smallest annual increase in the history of the survey.  For both aggregate outside counsel spending and hourly rates, in-house counsel predict that there will be no change during the coming year. This is also an historic shift compared with increases predicted in all previous years.

A larger percentage of the legal budget is going to law departments, less to outside counsel.

During the first five years of this survey, spending on outside counsel was generally double the spending on law departments.  The past four years, the ratio of legal spending has shifted in favor of law departments, reflecting the increasing recognition of the value of in-house counsel and the relatively lower cost of legal work that is done in-house due to process and staffing efficiencies. Specifically, the ratio of spending on outside counsel to spending on company law departments has declined from 2.0 in 2004 to 1.29 in 2007, up a bit to 1.6 in 2008.

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