Contract Attorneys: A New Model for Law Firms

The traditional law firm model of partners and associates is changing. The recession has caused firms to closer examine how they provide services to their clients, and how to maintain excellent service with responsible spending. One area of change is the recent use of project-based attorneys who are hired on a contract basis, as opposed to hiring full-time associates or partners.

Many firms have historically used temporary attorneys for routine tasks like discovery and document review for acquisitions. However, firms are now looking to also use contract attorneys who are specialized and have a niche skill to fill short-term needs. On the other side, the appeal for attorneys to go into contracted work is there as well, and growing. Contracted work makes a lot of sense for someone looking to use and hone their skills, build their resume and work for some of the top firms in the industry.

A recent survey of executives from a variety of businesses around the world (Global Firms in 2020: The Next Decade of Change for Organizations and Workersby the Economist Intelligence Unit and the Society for Human Resource Management) found that 67 percent say they will hire additional staff “cautiously” during the next decade, shifting their focus to contingent workers rather than full-time employees. The consensus was companies “must maintain leaner organizations, hiring on contract or outsourcing work rather than hiring full-time staff.”

Another recent study by Altman Weil found 39 percent of managing partners at 218 U.S. law firms used contract lawyers in 2009, 53 percent intended to do so in 2010, and 52 percent expect contract lawyers to become a permanent part of their staffing plans.

Part of the reason for the changing paradigm is industry-wide layoffs have left firms short staffed. Corporations are watching budgets more closely and challenging firms to change their traditional method of hourly billing. Moreover, temporary staffing makes sense for firms looking to cover for staff on leave, or to meet a specific need for a period of time.

Firms are also recognizing that hiring contract attorneys is a great way to determine if individuals are a good fit for the long term. Moreover, the supply of strong candidates for temporary positions is becoming more robust. Many women have left full-time positions to raise children (but could accommodate part-time work), talented private practice associates have lost jobs due to widespread layoffs, and a number of in-house attorneys have become disillusioned with life in Corporate America.

Thus, a ready and available talent pool is there, as is the demand for contracted lawyers. Accordingly, temporary assignment is an appealing option for both parties, and why increased numbers of firms are now contracting out work.

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In-House Law Departments Growing

According to the 2011 HBR Law Department survey, corporations are now using more in-house attorneys than in years past in order to deal with the growing demand for legal services. The shift is primarily in effort to cut back on spend as the economy continues to recover, thus corporations are relying more heavily on larger in-house teams instead of on outside counsel. Consequently, increased numbers of attorneys that have traditionally worked in private practice are now transitioning to in-house positions.

In a statement released by HBR, they believe “law departments are recognizing that they can do more with less by building up their in-house capabilities. The Survey shows that the median fully-loaded inside hourly cost per lawyer is approximately 46 percent below the median average hourly rate of the company’s top three billing firms.” In a time of careful spending and close budget scrutiny, firms are finding numbers this compelling hard to deny.

At the same time, however, the legal profession is recovering more quickly than most. The survey highlights that more than 50 percent of respondents reported an increase in total number of legal staff worldwide between 2009 and 2010, while only 29 percent reported a decrease. Overall, 80 percent of respondents commented that their company’s legal needs are increasing, with the median expected increase in overall lawyer staffing at 10 percent. The growth also seems to be coming sooner rather than later, as 40 percent of those surveyed expect to hire more lawyers in the coming year. Additionally, more than 33 percent of corporations attach high importance to expanding in-house teams, compared to only 11 percent that are looking to increase the use of outside counsel.

HBR Senior Director and Survey Editor Lauren Chung added the following about the data gathered in the survey: “This finding serves as one of the important considerations in building a business case for adding more in-house counsel to handle the increasing workloads. We are hearing from our consulting clients across industries that they are limiting the use of outside counsel to high profile matters or specific areas of expertise rather than to support the growing volume of work. With the rising cost of outside counsel, we expect this trend will continue.”

This is just one of a few key industry shifts settling in as the recession ripples out and begins to rebound. Increased numbers of contract attorneys, mergers and lateral movements, along with growing in-house counsel teams look to be the way of the future. As firms continue to balance cutting costs with maintaining quality in order to spur growth, we will continue to see a rise of this same “do more with less” attitude.

Law Firm Mergers Rising

Recently, law firm merger numbers have risen in the United States – up 79 percent from the month of January to the month of September. According to a recent survey by legal consulting firm Altman Weil, there were 43 transactions involving significant mergers and acquisitions among firms in the first 9 months of 2011, up from 24 during the same 9 months last year. One contributing factor to such dynamic growth is the United States economy has shown signs of improvement after one of the toughest economic downturns since the Depression.

“During the recession and in the immediate aftermath of the recession, firms were in what I’m going to call a ’survival mode,’ not a strategy mode,” Ward Bower, the Altman Weil principal said. “Now that the economy has grown, they’re dusting off their strategies.” This is certainly encouraging, and perhaps one of the best indicators that firms and consumers are regaining their confidence.

Another strategic objective driving the increase in mergers is the desire of many firms to grow geographically and expand their presence at home and abroad. While individuals are still willing to move of or when the right opportunity arises, many of these moves involve whole practices or niche groups that focus on a particular industry.