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Charging law departments with a facilities (rent-equivalent) cost

The budgets of all law departments should include an allocated cost for the space the department occupies. That facilities charge, the equivalent of what the department would pay at market value to rent its offices, conference rooms, library, receptionist and other space, may account for as much as 10 percent of the inside budget.

Recently, I heard a business executive explain that he saw no reason to load a facilities cost on the lawyers serving his unit “because that is a sunk cost – if the lawyers were not in the space, the company would still incur the same costs.” I disagree with his position.

If a law department wants to compare its cost structure to that of the law firms it hires, if it in other words wants to look at the blended hourly rates of its outside counsel and match them to the fully-loaded cost of its inside lawyers, the department must calculate and include facilities charges. It must fully load even imputed rental costs.

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