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While the rest of America is still feeling the squeeze of a tough economy, corporate law departments loosened their belts a couple more notches this year. According to Altman Weil, Inc.’s 2011 Chief Legal Officer Survey [PDF], law departments boosted their budgets for both in-house and outside counsel spend. Fifty-six percent of CLOs said they had increased their internal budgets from 2010 to 2011, compared to 51 percent the previous year. The median increase also ticked up from 6 percent to 7. Forty-six percent of respondents increased outside counsel expenditures, up from 43 percent a year earlier. “The increase in budgets may have been a little surprising, based on the tough economy,” says Altman Weil principal Daniel DiLucchio. While DiLucchio says that he hears over and over that clients want to focus on cost control and cost reduction, respondents’ actions are speaking louder than their words. One possible explanation for the budget increases is that departments are gearing up for an economic revival. “We could interpret it as prospective spending,” says DiLucchio. He says we may be also seeing evidence of increased appreciation for law departments and what they do. Responses were collected from 176 top corporate lawyers in October. The majority of participants represented corporations with revenues between $1 billion and $2 billion. Ten percent came from companies with over $20 billion in revenues, and another 10 percent came from companies with revenues between $10 billion and $20 billion. The median increase in law department budgets in 2011 was 3 percent, which DiLucchio says is roughly equal to the increase his firm has seen in law department salaries. Thirty-eight percent of top lawyers surveyed said they planned to hire more in-house lawyers in 2012. The biggest increases were seen in outside expenditures. For the second year in a row, the median outside budget increase was a whopping 10 percent. Controlling costs topped the list of 2012 priorities at 24 percent—so why have so many corporations apparently been doing just the opposite? “You have to wonder if there’s a disconnect between this idea that controlling costs is the number one issue,” says DiLucchio, “and what’s actually happening.” On the one hand, law departments are trying to explore less-expensive markets for outsourcing when appropriate. Almost 13 percent of CLOs said that their departments outsourced work to non-law-firm vendors in 2011—work that they previously would have only given to a law firm. But when it comes to getting value from outside counsel, law departments may be engaging in self-sabotage. For the third year in a row, top lawyers said they don’t think law firms are serious about changing their service delivery model. They gave firms a median rating of three, on a scale of zero to 10. But the companies aren’t doing much better. Respondents gave themselves a five in terms of how much pressure they were putting on firms to improve the value proposition. And although more respondents rated cost as more important than efficiency, 60 percent of respondents indicated they encouraged collaboration rather than competition among their panel of outside firms. The best advice DiLucchio has for law departments is to communicate a clear message to outside counsel. Although many respondents reported discussing staffing and budgeting at the front end of a project, ongoing communication is sometimes lacking. All too often, he finds that neither the company nor the firm is willing to ask the tough questions necessary to sustain the relationship. DiLucchio is consistently amazed to find that more law firms aren’t conducting regular evaluations of their firms and providing the firms with feedback. “I just think that’s fundamental in terms of managing the relationship,” he says. But only 35 percent of respondents said they regularly and formally evaluated outside counsel, and only 17 percent said they communicated evaluation findings to the firm. “As long as the company is sending them work,” says DiLucchio, “the firms assume that that is their evaluation.” Law departments miss out on the opportunity to change the firms’ behavior, says DiLucchio. He’s seen one of two things happen for firms: “Either you die a slow death, where the faucet is slowly turned off. Or you’re just called in one day and told that the company is moving the work elsewhere.”

See also: “Plenty of Good News in the Latest Report on In-House Compensation,” CorpCounsel, November 2011.

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