4 Reasons Why U.S. Legal Costs are Significantly Higher Than the Rest of the World

U.S. Companies spend 166% more on legal services per dollar of revenue than companies outside of the U.S., according to research by Acritas and as reported by Jennifer Williams-Alvarez of Corporate Counsel.  See http://www.corpcounsel.com/home/id=1202787039745/US-Companies-Are-Biggest-Spenders-on-Legal-Services-Globally?mcode=1202617073467&curindex=2

 

In addition, Acritas provided some key legal spend benchmarks:

  • Median legal spend at U.S. Companies is 0.40% of revenue.

  • Median legal spend at Companies in the rest of the world is 0.15% of revenue.

  • Median legal spend in the real estate industry is 0.89% of revenue.

  • Median legal spend in the banking industry is 0.60% of revenue.

  • Median legal spend in the tech industry is 0.45% of revenue.

Why is Legal Spend in the U.S. so much higher than the Rest of the World?  Here are 4 leading reasons why:

  1. In general, U.S. law firms charge higher hourly rates than law firms outside the U.S.

  2. The compensation for both in-house and external lawyers are generally higher in the U.S.

  3. There is more widespread use of the hourly rate in the U.S. than in the rest of the world.

  4. The U.S. is much more litigious market and there is greater regulatory oversight.

What can companies and law departments do to drive more value from their legal spend?

  • Because it can be difficult to find sufficient time to step back and look at this, more and more companies and law departments are using legal consultants to review and recommend new approaches, or creating legal operations roles, or both.

  • Work with your key legal service providers to develop cost certainty for higher repeatable legal work provided and move away from the billable hour for those types of services.

  • Use a legal consultant to review the management of your litigation portfolio.  Can it be bundled and offered to 1 law firm for more cost certain pricing?  Can there be bonus fees for law firms if certain types of litigation matters if a motion to dismiss or motion for summary judgment is awarded in your favor?  Can discovery costs be managed better?

  • Revise all of your form contracts with suppliers and customers to include mandatory mediation to try to resolve disputes.  In our experience, many contract related disputes can be resolved through mediation - saving both parties significant legal costs.  

Much more value can be derived from spending on preventative pro-active legal services.  Once you are reacting to a legal issue that arises, you are "chasing your tail" and will likely end up spending significantly more on legal services.