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Thoughts about outside rates rising at twice the CPI

“A comparison of the rise in law firm billing rates over two or three decades with the Consumer Price Index (CPI) shows that hourly rates have consistently increased by approximately twice the CPI.” This provocative statement, from GC Mid-Atlantic, Sept. 2007 at 16, gave me pause.

It seems plausible to me that the internal costs of law departments over the same decades have roughly kept pace with the CPI. After all, compensation costs account for three-quarters of so of the internal budget, and I doubt that many companies last that do not keep their pay and bonus scales at least around the annual CPI. No way, however, would those compensation increases double the CPI.

So, one would expect that over this time period the percentage of total legal spending on outside law firms increased steadily, as their increases in rates far outpaced internal increases in costs. Given that other data has found that the 60/40 ratio of outside-to-inside spending has remained quite constant (See my post of Dec. 5, 2007.) it must be that productivity has significantly increased outside or much less work has gone out.