A slide presented at a recent conference was entitled “The US corporate legal services market generates $96B per year in spending.” Its pie chart had two slices (See my post of Feb. 26, 2008: estimates total US law department expenditures.): the larger, “Spending on Outside Counsel,” at $64 billion; and the smaller, “Corporate Legal Departments,” at $32 billion.
The data came from BTI’s Premium Practices Forecast 2008. The website of BTI says that the $2,400 “report uses data from more than 1,900 one-on-one interviews with corporate counsel” (that number of interviews is over 8 years; the executive summary mentions 270 interviews of corporate counsel in mid-2008). Apparently, therefore, the $96 billion figure is an extrapolation from the most-recent 270 interviews.
My assumption is that the extrapolated figure does not include settlements, fines and judgments paid by the companies. I had not thought of it until now but those payments are sometimes made to other companies, which to that extent would net against each other. Nor does the figure likely include capitalized legal expenses (See my post of Feb. 25, 2009: capitalized patent costs; and March 11, 2009: capitalized legal fees.).
That extrapolated data means that outside counsel spending is two-thirds of the total spend, which agrees with the most common ratio of inside-to-outside spend. Many posts here cite that ratio, but don’t delver further to explain why it holds true so commonly (See my post of March 8, 2009: example of the ratio from a city’s budget; Feb. 12, 2008: regression analysis; June 28, 2005: make or buy and the 60/40 norm; Oct. 27, 2005: repeats the ratio; Jan. 28, 2007: data from JDS Uniphase; Dec. 5, 2007: little change over 15 years in a large survey; Aug. 14, 2006: relates to cost per hour; Jan. 16, 2007: procurement’s involvement; Jan. 18, 2008: economic clout of US law departments; Sept. 10, 2005: blended billing rates; July 11, 2008: autarky and Respironics; Sept. 9, 2008: 40% is typical for internal budget of law department; Jan. 20, 2009: settlements and judgments; Feb. 13, 2008: DuPont’s figures; Oct. 12, 2008 #3: Fortune 500 estimate of $24 billion; Dec. 26, 2008: quizzical data; and March 1, 2009: EMEA data.).