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January 08, 2002
Spending on Outside Counsel Expected to Slip
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How will U.S. corporations adjust their spending on outside legal counsel in 2002? Will the recession force them to rein in spending, or will economic factors be less of a concern, as businesses call on outside firms more to help navigate through a changing regulatory landscape and rising litigation?

It turns out that companies may be headed in both directions, according to a new survey on law department spending by National Economic Research Associates (NERA).

In its first-annual "Legal Leading Indicators" survey, NERA found that more than one-third of the county's largest corporations (38 percent) say they plan on decreasing their spending for outside lawyers, although the decrease is not expected to be dramatic.

The percentage of spending on outside counsel, as a share of overall spending, is expected to slip from 53.5 percent in 2001 to 51.6 percent in 2002. At the same time, 23 percent of companies projected an increase in outside law firm spending.

Even the projected decrease is not across the board. For a few key specialties, notably labor and regulation, the percentage of companies that anticipate increasing outside legal budgets was greater than those anticipating a decrease.

Staffing changes and changes in regulation are the most important factors influencing outside counsel spending next year, ahead of changes in the economy, and far more important than "threats of terrorism," which was cited as an important factor by only 2 percent of companies surveyed.

For some, staffing changes simply means more in-house hiring. "We will be bringing in higher-level in-house talent," said one respondent to the NERA study. "More in-house counsel," echoed another, with "more focus and closer review of outside billings."

The survey suggests that 2001 found many corporate law departments at a crossroads. When asked to compare current legal budgets with 2000, 48 percent of companies reported there had been an increase, while only 18 percent reported a decrease. Looking ahead to 2002, 39 percent anticipated that outside legal spending would decrease "somewhat" or "a lot", while 38percent said their outside legal spending would remain flat in the coming year.

The NERA survey was based on interviews with 302 firms with annual revenues of $500 million or more. Sixty two percent reported sales of least $1 billion and sixty-two percent of respondents identified themselves as chief counsel. Interviews were conducted from October 31 through November 20, 2001 -- far enough past the terrorist attacks and far enough into the recession mindset so that a measured projection of 2002 spending could reasonably be made.

NERA, an affiliate of Marsh & McLennan, provides economic consulting services to both in-house legal departments as well as many of the country's leading law firms. The study was undertaken in an effort to help their clients with their 2002 business planning.


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