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Contract lawyers and their marked-up costs – the debate goes on

For the record, the Client Advisory, March 2007 of Hildebrandt and Citigroup Private Bank at 11, notes: “In recent years, the numbers of contract lawyers employed by large firms has increased dramatically, with some firms using literally hundreds of such’ temporary’ lawyers every year.” Meanwhile, following my blast against contract lawyers paid $40 an hour who are charged out to clients at $120 an hour (See my post of Feb. 16, 2007.), I received two thoughtful e-mails and both writers agreed to let me quote them. A patent lawyer at Haynes & Boone, Craig Bohn:

Have you truly factored in the potential liability from contract attorneys? How do they affect a firm’s malpractice insurance? More importantly, how do they affect the risk management analysis for a primarily self-insured firm? I don’t think a 60% overhead factor is excessive, and one-third is seven percent more, which may or may not be a lot.

Warren Jacob, a partner with O’Melveny & Myers, also disagrees with me that substantial markups are excessive:

“Any associate that is billed out at $120/hr is mostly likely also being paid $40/hr. Are you suggesting that companies hire these attorneys directly as well? Contract lawyers have to be interviewed, hired, housed, given support staff and equipment. and supervised. Their pay is only a part of the cost of generating their work product. Of course if companies want to incur all those costs as well and think that they can do it for less than $120/hr, they should do that. But they can’t and that is why they look to law firms to provide these services, because it saves them money.”

Both points, about malpractice coverage and the overhead incurred with contract lawyers, are excellent and I thank Craig and Warren.

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One response to “Contract lawyers and their marked-up costs – the debate goes on”

  1. Patrick Lamb says:

    Craig Bohn’s comment makes me wonder exactly how detailed the firm’s disclosure is to its malpractice carrier to begin with. I can’t imagine that there is any meaningful increase associated with the use of contract lawyers. But if there is, I am led to wonder whether the use–and the increased risk of error–is discussed with the firm’s clients. I think it is misleading to present someone as one of your own when you know or believe that they don’t measure up to your firm’s standards.