Here are some tips for the general counsel on a budget.
Hire senior associates in place of junior partners, especially for matters involving marketing and advertising, mergers and acquisitions and government relations.
When possible, retain lawyers based in New Orleans, Oklahoma City or Portland, Maine, instead of New York, Los Angeles or Washington, D.C.
Use fewer large law firms, and when you do work with them, ask your relationship partners to use more paralegals.
And, whatever you do, make sure to negotiate prices.
Those come from an analysis of more than $16 billion in fees legal departments billed for law firm services in the U.S. between 2007 and 2013. Enterprise legal management firm Datacert TyMetrix and advisory firm CEB gathered and analyzed those fees to dissect how much a lawyer’s location, status, firm size and practice area (among other factors) impact their rates.
The report includes fees paid by 90 companies to more than 5,600 law firms and more than 206,000 lawyers and paralegals.
Called the Real Rate Report, it is one of a growing number of benchmarking tools that, since their arrival in the last five years, have helped general counsel better understand market prices for outside counsel and how their spending compares to other companies.
“Increasingly, we’re interested in benchmarking data to help guide our decision-making,” said Gregory S. Davis, senior vice president, general counsel and secretary at DeVry Education Group.
“I use that kind of data more to assess whether my spending is normative. Is the balance between insourcing and outsourcing work normative? Am I paying my people the right amounts?”
That information can come from reports such as Huron Consulting Group’s Impact Benchmarking Survey, which analyzes legal spending. Last year, the report found that general counsels with a robust oversight program spend 38 percent less than those without such a program.
Consultants, including Altman Weil, also sell customized benchmark reports and surveys that can compare legal spending from one department to another.
While the purchase of legal services involves many factors that have nothing to do with price — such as relationships and understanding of a business — TyMetrix’s report aims to make comparison shopping easier for general counsels.
The report says, for instance, that the average price for a partner who practices real estate law and has 20 years of experience at a 1,000-lawyer firm in Chicago is between $506.21 and $648.12 an hour — depending on the client’s industry. In New York, that same type of lawyer costs between $599.97 and $741.88. In Syracuse, N.Y., the least expensive market in the report, it’s between $349.75 and $491.66.
With today’s technology, general counsels can take advantage of those large geographic price differences easier than ever. David Moran, director of data management for legal analytics at TyMetrix, said that’s exactly what general counsels are doing.
“Location is a major driver,” Moran said. “As they look at law firms and who they have in their portfolio, (general counsels are) asking the question of, ‘Do (matters) have to be handled in this particular jurisdiction, or can they be handled outside and not be tied to a certain location?’”
DeVry’s Davis said he has saved 40 percent on a particular area of legal work by hiring a law firm that utilizes lawyers in different cities based on the complexity of any given matter.
He pointed to a firm, which he declined to name, that has a “very leading-edge model.”
“They have highly sophisticated people here in Chicago and other business centers that serve as our points of contact and work on our more sophisticated or challenging stuff,” he said. “But a lot of the work, particularly on the less sophisticated matters, gets done in smaller cities — Columbus, Indianapolis, Phoenix.”
Location of a lawyer’s office is the second largest driver of rates, trailing only the size of the law firm, according to the TyMetrix report.
By comparing billing rates and how much they have grown in various cities, the report identified 12 cities that it calls “possible bargains.” They are characterized by the lowest billing rates and the least growth in those rates.
Near the Midwest, which is where Moran said Chicago’s general counsels are most likely to hire outside counsel away from the city, those possible bargains include Detroit, Oklahoma City, Louisville, Ky., Memphis, Tenn., and Omaha, Neb.
The report also included some evidence of broader shifts in how general counsels have employed outside counsel since the recession.
While lawyer rates increased 7 percent on average from 2007 to 2008, they crept up only 3.7 percent last year. Since 2008, the highest average rate increase was 4.4 percent from 2011 to 2012, the report says.
Chicago stood out, however, with lawyer rates growing 6.7 percent on average.
And the use of first-year associates went from 3.4 percent of all hours billed five years ago to 1.2 percent in 2013 — a decrease of more than 60 percent, the report found. Moran said that shows the influence general counsel can have on how outside counsel staff their matters.
“It shows the push (a general counsel) can have when you say you’re going to put (outside counsel) on notice that I won’t pay for this type of work,” Moran said. “It has suppressed that particular component.”