Of the 564 people who submitted data for the largest legal sourcing benchmarking survey ever, only a handful were from sourcing or procurement groups. This is surprising, since they should want to know whether the expenditures of the legal function (at least the external expenditures) are in line with peer companies.

Almost two thirds of those who initially took the online survey (63%) are general counsel. The next largest group of respondents consists of lawyers who report directly to the general counsel (16%). The third most frequent are law department managers (Chief Operating Officers, 8%).

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Procurement professionals should understand the interplay between changes in revenue and changes in legal spend. For example, it would not surprise me that for many US companies, revenue plummeted during 2009 at a faster rate than total legal spending. Customers can decide not to buy faster than general counsel can terminate staff or reduce outside counsel spend. It's true -- the leading benchmark metric (total legal spend as a percentage of revenue), might have ticked up or even jumped during 2009.

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Today, Spend Matters welcomes back our resident legal Spend Management expert, Rees Morrison.

Educate yourself and your peers in procurement. You can get the first edition of the 60-page global benchmarking report from General Counsel Metrics, LLC, if you click here to submit your company's data. You'll need to know the number of lawyers, paralegals and all others in your legal department as well as last year's internal legal budget, external counsel spend, and your company's revenue.

The first release -- followed by new monthly releases during the summer and fall as more law departments take part -- covers 455 law departments from 35 countries and across 19 industries. At the end of 2009, these departments had an average of 27.9 lawyers and 21.5 other legal staff. In total, they had 12,700 lawyers and 9,800 other legal staff. The smallest quarter of the group, roughly 110 departments, reported from one to three lawyers. The next larger quarter reported more than three lawyers but less than eight. The next quarter had 8-25 lawyers, while the largest had from 26 lawyers to well more than 500.

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For a long time, your procurement group may have wanted to better understand whether your company's legal department spends like other well-run legal departments. General Counsel Metrics, LLC, invites you to find out. You can take part in an innovative global benchmarking effort. In less than three months, more than 470 legal departments or financial and procurement professionals have responded to the online survey. The report will let you see that total legal spending as a percentage of revenue declines with the size of the company, that spending varies significantly by industry (on the order of a 3:1 range), that the cost of per-hour of inside counsel is about 50% less than that of outside counsel, and that the norm for all legal departments is about one lawyer for every non-lawyer in a department.

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Spend Matters enjoys the breadth of insight brought by other perspectives, and has enjoyed wonderful contributions from its guests.

Why is Law a Tough Sourcing Nut to Crack?

As is often the case, there are kernels of truth in misconceptions -- perhaps even whole corn cobs. Nonetheless, I have heard a number of assumptions among sourcing experts when it comes to legal spend, not all of which hit the mark. And they're certainly worthy of discussion, so here goes:

Myth 1 - Legal departments don't know how much they spend.
Fact - Most departments know their total domestic legal spending reasonably well, or as well as the accounting department knows it. Outside the headquarters country it is a different matter.

Myth 2 - Legal departments don't analyze the components or trends of their spending.
Fact - Not a myth -- this charge hits home quite commonly.

Myth 3 - In-house attorneys are ignorant of tools and techniques to manage costs. Worse, they disparage such methods.
Fact - Some of this lack of interest may be true. "Managing lawyers is an art, not a science," lawyers will plead.

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I've selected eight posts from my Law Department Management Blog that I suspect will be interesting from an internal sourcing group standpoint and hopefully valuable to many other Spend Matters readers as well. Here they are.

1. Auctions: pick the best bidder but for one dollar more than the second best bid May 28, 2009)
This is a way to lessen the likelihood that the prevailing bid is too low for the winner to perform well. This method increases the chance that a fixed-fee arrangement will succeed for both sides.

2. Four ways to look at concentration regarding a department's use of law firms (May 29, 2009)
The pattern of a legal department's use of law firms has several formulations. Commonly, concentration describes the number of firms retained, but there are other ways to convey different aspects, such as according to matters or only firms paid above a certain amount.

3. Try a double blind evaluation of law firm proposals (May 29, 2009)
The bias of pre-formed impressions makes evaluations of proposals from firms quite problematic. Evaluators in the legal department like or dislike some firms even before they read the proposal. One way around such favoritism is to conceal the identity of the firms in large parts of their proposals.

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The cost of ownership for corporate legal departments can be elusive. Here are 10 comparative metrics for US law departments with more than five lawyers on staff that may help shed some light on your legal spend:

1. Legal departments consume approximately 0.5% of their corporation's revenue each year including their outsourcing.

2. That benchmark for "total legal spending" does not include settlements, judgments and fines, which vary widely but are typically much less.

3. A legal department's internal expenditures are typically about 40 percent of total legal spending.

4. On the order of 75 percent of the internal departmental budget is comprised of salaries, bonuses, and benefits.

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Law departments deserve information from prospective law firms and service providers and have a right to ask them probing questions. Nevertheless, having reviewed several RFPs lately, I object to several questions. The following questions, modified only slightly, are blatantly intrusive and unfair. Even procurement managers should blush.

- Whom do you regard as your major competitors?
- How do you compare your firm or company against your major competitors?
- What are your key strengths relative to theirs?
- What is the contact information for one client that has ceased to do business with you within the last two years?
- What are the attrition rates over the past two years among your employees who would be working on our matters?

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