Law departments, enjoying some free IT and HR support, have lower costs than law firms

Despite having written fulsomely about fully-loaded costs per hour of inside lawyers, I have not explicitly recognized two areas where those costs cannot be compared to the effective billing rates of outside counsel.

Law departments piggy-back on technology infrastructure, such as backup, local area networks, email, document management, intranets, bulk purchase rates and the people and costs associated with all of them. They may, however, escape some of the costs of that technology backbone (See my post of June 16, 2009: Information Technology staff group with 23 references and 1 metapost.). Law firms, by contrast, bear those kinds of costs and cover them in their hourly billing rates.

Likewise, some amount of personnel costs in a company fall to the Human Resources group, not to the law department. Those expenses such as for maintaining job postings, calculations of bonuses, oversight of the 401K plan, answering questions about benefits, vacation tracking, and many more may fall in the HR budget and not be allocated out (See my post of June 14, 2009: HR departments with 16 references and 3 metaposts.). The law department does not see those costs, at least to some degree, whereas a law firm has to staff for them, pay for them, and charge enough to cover them.

The point is that the fully-loaded cost of inside counsel in all likelihood do not reflect at least some of the fundamental expenses incurred by the company’s technology and personnel functions. The billing rates of law firms necessarily cover their counterpart costs. Hence, the two billing rates are to that degree not comparable.

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