Author: Tim Cummins
I received a request from an IACCM member who is undertaking analysis of the potential savings if his large, international corporation replaces in-house lawyers with contract managers. Research in the US has apparently led to a number of $100 per hour - presumably fully accounted cost. His question is whether the potential for cost reductions is similar in Europe.
I thought that I would share my answer to see how others might react. I am sure there will be those who applaud the idea of cutting legal headcount, while many will doubtless suggest that such a move would represent grossly irresponsible risk-taking.
Your question is really interesting and quite challenging to answer.
“In Europe – as increasingly in the US – there are many contract or commercial managers who are qualified attorneys, but not 'of counsel'. In some instances, they may perform jobs of broad equivalence to the in-house counsel. In others, the thing that attracts them to the job is that their role is significantly broader – and hence a cost comparison may be rather misleading.
In other instances, the alternative to a lawyer may be a para-legal or even an unqualified individual who has been trained to perform many of the 'lower-level' legal tasks. This model can of course reduce per hour costs considerably.
A third model is where much of the legal and contract-related work is moved to an off-shore center, either captive or outsourced. This option will generally be the cheapest of all.
I think the point here is that there is wide variability between organizations in the role they perceive to be needed. By way of example, I attach recent benchmark data showing where contracts / commercial groups typically spend their time; you will see that this is a much wider remit than the typical law department. Indeed, to the extent there is a trend in Europe, it is towards the realization that legal skills and knowledge are only a component of contracting and that there needs to be a focus away from pure lawyers towards 'commercial managers' with a much wider understanding of deal economics, risks and value management.
Our research shows that companies with a dedicated contract / commercial function achieve significant headcount efficiencies – but only part of this is through reduced legal resources; they also drive significant efficiencies in the functions that otherwise have to prepare and manage key aspects of the contract (e.g. Statements of Work, Service Levels etc).
I suspect that the theoretical per hour savings of simply replacing in-house counsel with an equivalent 'contract manager' would typically be around $35 – $50 in Europe – and significantly more if the work is moved to a low-cost center. However, as indicated above, my concern is that this approach fails to ask what is the real business need and how to optimize the value achieved from contract management.
If there is interest in this wider question, IACCM has various tools to support analysis of the contracting process and extensive additional benchmarking data to indicate the business impacts of alternative models.”