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Damages, settlements, and fines (legal resolution costs) in relation to inside and outside costs

Data on payments made for legal resolutions such as damages, settlements, and fines are difficult to obtain (See my post of Dec. 17, 2008: settlements with 26 references cited.). Let’s call them collectively “legal resolution costs.”

What would be useful to know is a typical balance between total legal spending – inside costs and external fees paid – and legal resolution costs. Some data is available. Based on a recent General Counsel Roundtable benchmark study, the ratio is around four to one between total legal spending and legal resolution costs.

Let’s translate that benchmark into dollars for the typical distribution in a law department where 60 percent of its total legal spend goes to law firms or vendors and 40 percent to its internal costs. If I have my math right, that means for every $1 million paid in legal resolution costs, the median law department spends about $1.6 million on its own lawyers and staff and $2.4 million on outside counsel. Stated the other way around, for every $1 million spent internally and externally, the law department that conforms to this benchmark ratio spends $250,000 on legal resolution costs.