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Law departments should not charge ahead with internal time charge backs

Most law departments charge back to business units a significant portion of the outside counsel fees paid on their behalf (See my posts of Feb. 27, 2008: practices of Time Warner Cable; and July 31, 2006: goal of 100% of outside counsel fees allocated out.).

Far fewer legal departments charge back business units for the time incurred by inside lawyers. Most general counsel want to do nothing that discourages clients from coming to the law department early and often. Otherwise, the general counsel first has to force reluctant lawyers to submit their time (See my posts of Aug. 31, 2005; having in-house counsel track time; and Sept. 10, 2005: lawyers loathe recording their time.).

The big second step is to charge clients for that internal time (See my posts of June 30, 2006: five bases to charge business units for internal time; April 27, 2005: Eastman Kodak’s European lawyers; and Jan. 13, 2006: tracking internal lawyer time and charging clients: pros and cons.). Some decisions should precede that (See my posts of May 14, 2006 and Oct. 22, 2006: multiple charge-back rates not a good idea; May 16, 2006: definition of “chargeable” time; and Sept. 10, 2005: charging only for particular services.).

The controversial practice of cross-billing for internal time has pluses and minuses (See my posts of Jan. 13, 2006 and March 24, 2007: pros and cons; Jan. 1, 2008: may be useful when you seek reimbursement of attorney’s fees.). Mostly the practice has opponents (See my posts of May 31, 2006: Pandora’s Box of billing business units for inside lawyer time; Oct. 30, 2005: charging falls short of creating market discipline; and Nov. 13, 2006: encourage clients, charged for internal time, not to avoid lawyers.). One law department has even devised a creative alternative (See my post of Aug. 31, 2005: send hypothetical bills to clients.).

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