A survey of Law Department Operations (LDO) Directors sheds light on how general counsels are – or are not – controlling costs. 

“Law Department Operations Director” is a recent position. The First Law Department Operations Survey is published by Inside Counsel magazine and the Blickstein Group in cooperation with Huron Consulting Group. It appears in the November Inside Counsel print edition.

Fifty Fortune 500 respondents answered “which of the following cost-savings initiatives do you use?” Here are the answers. I have grouped them into categories of my making but the text following each dash is quoted:

Pricing and Purchasing
– Flat fee arrangements (77%)
– Preferred provider network (69%)
– Rate freezes (69%)
– Limits on disbursement through billing guidelines (69%)
– Use less expensive attorneys [i.e., regional firms] (65%)
– Aggressive rate negotiation (62%)
– Limit when rates can increase (62%)
– Volume discounts (62%)
– Other alternative fee arrangements (50%)
– Direct relationships with vendors used by firms on your behalf (46%)
– Cap rate increases (39%)
– Discount rate with bonus for success (23%)

– Electronic billing (77%)
– Quick pay discounts (27%)

– Early case assessment (54%)
– Staffing controls (50%)

If you buy my categories, you will agree that law departments focus on pricing, purchasing and payment. (I assume that the question meant to focus only on outside counsel cost savings; it would be interesting to have the answers for within the law department).

Any serious cost control today by inhouse counsel certainly improves on past inaction. I think most GC are failing, however, to focus enough effort on process, on how lawyers practice law. Only ECA and staffing controls go to the “how”. Where, for example, are efforts to require matter budgets, application of best practices, automation, risk analysis with decision trees, document assembly, and proper use of KM systems.

Judging from the large jump in revenue and profit at large law firms (through 2007), it’s not obvious that the focus on pricing, purchasing and payment has yielded real savings. Is it possible GC are pushing on proverbial balloons, meaning most of their efforts move costs around rather than reduce them? I hope I’m wrong and some outraged GC or LDO Director will publicly provide statistically sound data to show real costs savings.

Real costs savings mean changing the process, focusing on how lawyers practice. The profession needs to overcome its “I am an artiste” attitude and develop better ways of working. The only other alternative I see is for GC to figure out how much matters should cost and then offer that fixed price and no more.

[For those with access to Legal Onramp, see the conceptually related Top Ten Ways For Clients to Save discussion.]

Update (21 Nov 2008): Brad Blickstein, of the Blickstein Group, contacted me about this post. He points out that the question above was multiple choice only, so the conclusion I draw from the question is therefore suspect. Specifically, there was no place for respondents to include the process techniques I mention. Brad notes that “This question was designed to provide insight on what law department operations managers have implemented to lower outside counsel bills, not what corporate law departments (or GC’s) are doing to lower overall costs.” My reasoning is thus faulty but based on anecdote, I still think the conclusion is correct. The survey is now available for free download at http://www.blicksteingroup.com/