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Hourly Billing Still King in Corporate Legal Departments

June 25, 2019 | Posted in : Contingency Fees / POF, Fee Agreements, Fee Data / Analytics, Hourly Rates / Hourly Billing, Study / Report

A recent Law 360 story by Kevin Penton, “Hourly Billing Still King Among In-House Departments,” reports that hourly rates are by far the most common type of fee structure used by corporate legal departments when employing law firms, according to a benchmark report released by the Association of Corporate Counsel and legal search firm Major Lindsey & Africa.  Just over two-thirds of the legal departments surveyed hire law firms using either standard hourly rates or discounted hourly rates, followed by nearly 45% that use flat fees and 31% that cap the fees, according to the Global Legal Department Benchmarking Report.

Yet while the traditional hourly rate continues to reign supreme, legal departments at companies are also increasingly varying the fee structures they use, implementing structures such as contingency fees, performance-based holdbacks and incentive or success fees, said Lee Udelsman, a partner in Major Lindsey & Africa’s in-house practice group, to Law360.  “Companies should get a lot of kudos for being creative in this area,” Udelsman said.

Legal departments sought to hire law firms most frequently for matters involving commercial law, with contracts, data privacy, commercial litigation, trademarks, and mergers and acquisitions also leading the departments to seek assistance more relatively frequently, according to the report prepared by Major Lindsey & Africa and the ACC — a global legal organization that represents more than 45,000 in-house counsel.

The report also analyzed what members of legal departments consider important and whether they think their own sectors are meeting those standards.  On a scale of 1 to 5, with 5 being the most important and satisfied, the report found that legal department initiatives and activities being aligned with the strategic priorities of clients was most important, at 4.6, followed by legal departments clearly demonstrating their value to company leaders and others, at 4.4.

Yet those who took the survey found their departments lacking for both performance attributes, as the report refers to them.  Aligning department initiatives with client priorities netted a score of 4.0, while demonstrating the departments' values to key stakeholders returned a score of 3.8, according to the report.  “Respondents realize that there’s opportunity for improvement," said Greg Richter, partner and vice president of retained search and advisory services at Major Lindsey & Africa, to Law360.

On average, lawyers comprise 68.2% of the staffs of legal departments, followed by 12% for paralegals and case managers, 8.2% for secretaries and administrative staff, and 6.8% for various nonlegal professionals, according to the report.  Legal departments went over budget in 2018, setting aside an average of $12.4 million while actually spending nearly $16.7 million, according to the report.  The average cost per hour for attorneys was $114 and for nonlawyers was $63, according to the report's findings.

"The ability to compare your law department to more than 500 others in such detail is incredibly significant for performance-focused general counsel worldwide," said Richter in a statement.  Officials at ACC and Major Lindsey & Africa both expressed surprise at the relatively-low rates of technology adoption at legal departments, with only 43.9 percent using eSignature, 27.2 percent using eBilling, and less than 42 percent using technology management for contracts or documents.