High costs are still far and away the biggest bone of contention in-house counsel have with their outside lawyers, but there are a number of factors that show rates are becoming less of a concern than in the past.

In GC Mid-Atlantic’s latest annual GC Satisfaction Survey, 58.5 percent of chief legal officers from across the region tagged high costs as their biggest complaint about outside counsel. That is, however, significantly less than the 72.7 percent of respondents who felt the same way in 2009.

The change could reflect growing satisfaction with law firms’ willingness to offer either reduced rates or alternative fee arrangements.

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While none of the respondents in 2009 felt their outside lawyers demonstrated a lack of responsiveness, 9.4 percent did this year. And those complaining their attorneys were reactive rather than proactive rose from 7.3 percent in 2009 to 11.3 percent in 2010.

When choosing their outside lawyers, 75 percent of general counsel ranked expertise as most important. Responsiveness was also selected by 51.1 percent of respondents as being a top priority for selecting lawyers. The bulk of respondents, or 46.8 percent, ranked rates as the second most important factor. Only 21.3 percent ranked rates as most important, down from the 40.4 percent who felt that way last year.

In another example of the decline in the importance of rates, 54.5 percent of respondents said high rates were the most annoying thing about billing, but that is down from 72.9 percent who responded the same way in 2009.

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General counsel don’t seem to be worried about billing cycles or even a lack of alternative billing methods. They did, however, show annoyance with overhead allocation, charges for bill review, inefficiencies and overstaffing.

There was an increase year over year from 60.8 percent to 66 percent of respondents who said they sometimes question charges. About the same number — nearly 32 percent — said they often question charges, only 2.1 percent said they always do and none of the respondents said they never question charges.

Slightly fewer respondents than last year, or 60.9 percent, said they think the rates they are charged by outside counsel are about the same as the rates of other firms. Thirteen percent said they thought their rates were more expensive, a rise from just 2 percent last year who felt the same. More than 28 percent thought they were being charged more economical rates, down from 38.8 percent who said the same last year.

General counsel don’t sit around thinking all bad thoughts about their outside counsel. They had lots to say when asked what areas they were most satisfied with.

Some of the praiseworthy qualities mentioned about their successful outside counsel were: responsiveness, business acumen, providing analysis, keeping in-house counsel apprised of developments, collaboration, creative thinking on litigation strategy, cost-effectiveness and the ability to listen and execute a specific strategy.

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Managing the Matter

For the first time, GC Mid-Atlantic asked whether general counsel had specified in the past 12 months how matters should be staffed by outside firms, and 65.3 percent of respondents said they had. Another 4.1 percent said they hadn’t, but planned to start.

For those who do, or plan to, dictate how matters are staffed, 75.8 percent selected the impact on cost as a reason for doing so. Forty-five point five percent also chose the impact on outcome as their main reason, and 33.3 percent will do so because of the impact on experience. One respondent said he or she would dictate staffing because of its impact on diversity.

It would seem that more general counsel are at least sometimes asking for alternative fee arrangements than they had in the past. Of the respondents, 76.6 percent said they sometimes ask for fixed-fee or other alternative billing mechanisms, which is up from 62 percent in 2009. Last year, 16 percent said they never asked for such arrangements. That number dropped to 6.4 percent in 2010.

Fewer respondents, however, are always or often asking for alternative billing methods. Just 2.1 percent always ask, which is down from 4 percent, and 14.9 percent often request such arrangements, down from 18 percent last year. But when it comes to five years ago, 73.3 percent of respondents said they were requesting alternative fee arrangements more frequently now than they did then. And 68.1 percent said firms are offering those arrangements more now than they did five years ago.

Internal Operations

The trend of bringing more work in-house continues, as 70.4 percent of respondents said they have chosen to do so over the past five years. That is up from 64.8 percent who said the same in 2009 and 44 percent in 2008.

Economic conditions are by far — at 76.3 percent — the biggest reason for bringing more work in house, whereas unhappiness with outside counsel was selected by just 15.8 percent of respondents.

GC Mid-Atlantic began this year to inquire about contract attorneys brought in to work on certain projects, and 64.8 percent of respondents said they did not bring in any in the past 12 months. It also seems like there wasn’t much hiring or firing going on at the bulk of legal departments across the region in the last year.

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Sixty-six percent of chief legal officers said they neither hired nor laid off attorneys in the last 12 months. Just under 6 percent said they both hired and fired lawyers. Nearly 19 percent of respondents hired attorneys and 9.4 percent fired them.

Diversity and Hiring Decisions

This year’s survey results show more emphasis being placed on diversity by chief legal officers.

When asked how much gender and ethnic diversity of outside law firms matter to them, 46.2 percent said it is somewhat important, which is up from 28.3 percent last year. And those who view diversity as very important grew from 5.7 percent to 17.3 percent. Those who felt it wasn’t important, 38.5 percent, was down considerably from the 66 percent who said the same in 2009.

But when it comes to making hiring decisions based on diversity, those numbers haven’t changed much. Of the respondents, 83 percent said they have never hired a firm because of its gender or ethnic diversity. That is down slightly from the 86.8 percent who said so last year. Just 3.2 percent of respondents said they had ever fired a firm for a lack of gender or ethnic diversity.

When it comes to assigning matters to outside counsel, 68 percent do so on a case-by-case basis, 22 percent assign by practice area, 12 percent give work to an approved list of providers and 2 percent give all matters to the same firm.

Eighty-four percent of respondents give work to more than one firm in the same practice area, which is a dip from the 90.4 percent who said they did so in 2009.

Despite a predicted shake up in the legal profession when it comes to who is getting the work, the bulk of respondents — 64 percent — still say they rarely change outside counsel. But a growing number said they change outside lawyers for each matter. In 2009, 17 percent of respondents said they changed outside counsel for each matter, whereas 32 percent said the same this year.

About the Respondents

The bulk of the 60 respondents were with companies headquartered in Philadelphia or its suburbs. A number of the companies were based throughout New Jersey, some were in New York City and a few were in Pittsburgh and its surrounding suburbs.

Revenue sizes ranged dramatically, from less than $10 million to $20 billion annually, with more than half having over $1 billion in revenue.

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The legal departments ranged in size of attorneys and staff. Nearly 34 percent of respondents had between two and five people in their legal departments. More than 30 percent had between 10 and 25 people in the department. Nearly 9 percent had more than 100 staff and lawyers across their legal departments. Nearly 68 percent said their legal departments were centralized geographically.

In terms of the reach of their companies, 38.6 percent said their companies were international, 19.3 percent were national, 33.3 percent were regional and 12.3 percent were local. Slightly more than half, or 51.8 percent of respondents, were with privately owned companies. •

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