The Pandora’s Box of billing business units for inside lawyer time

To charge back or not to charge back time, that is a question for inside lawyers. Those law department managers who advocate a time chargeback system do so in part because it makes clear that legal services are not a free good. A chargeback encourages clients to use lawyers when they are most valuable. If you bill for your time, your company benefits because clients take more care of your singular resource: time.

A thoughtful article, even though five years old, disagrees. “[E]xperience seems to hold that companies that adopt this approach end up devoting enormous amounts of time, energy, and resources to the billing process, often to the point of having business units hire their own lawyers to manage and negotiate bills,” ACCA Docket, Vol. 18, May 2000 at 4 (Stephen J. Friedman and C. Evan Stewart). I have never heard of that latter wasteful step of in-house lawyers hired to war over charge-backs! The authors also believe that “such internal billing procedures may well inhibit corporate clients seeking important legal advice in a timely fashion.” That worry has more bite, as units that struggle to make their numbers may be tempted to shave legal costs.

Friedman and Stewart recommend that the general counsel negotiate with the chief executive a workable aggregate budget paid from general revenues. Only in exceptional situations, such as a major acquisition or lawsuit, should a business unit incur the legal costs.

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