Charging back clients for outside-counsel costs

Paul Roy, Director of Finance & Administration of Time Warner Cable’s Law Department, allocates to 20+ divisions and regional offices outside-counsel costs incurred by the Department on their behalf. His department charges back approximately 60 percent of its outside costs in a typical year. The rest is absorbed in the Department’s budget as a corporate cost. Lots of matters are deemed corporate, like class action litigation, regulatory demands of a cable company, securities, benefits plans, and legacy litigation.

InsideCounsel, Jan. 2008 at 50, notes from an Altman Weil survey “62.5% of legal departments charge back outside counsel costs to operating units.” This is not to say that 100 percent of outside counsel costs are charged back by the law departments in that survey; like Time Warner Cable, most legal departments absorb a fair amount of spend (See my posts of Oct. 15, 2007 on a client gatekeeper for external expenses; May 31, 2006 on charge backs; Nov. 10, 2007 about a three-way approval process.).

Roy tries to give the divisions estimates of amounts to be charged them but it is difficult to do because costs are hard to predict when you become granular – the total legal budget of the Department is easier to predict. There are some discussion about which costs should be assigned to which bucket – a business unit or the law department, as business units don’t want to absorb costs and so they argue for them to be paid as a corporate expense. Sometimes the outcome is to split costs.

Roy’s department does not charge back staff units; fees paid firms on behalf of IT, HR, and marketing are kept in the legal budget. The rationale: those costs are corporate. But there is some allocation to business units of corporate overhead, which includes a portion of the legal fees paid.

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