Wouldn't most people assume that the experienced in-house lawyers of a company would do most of its legal work? That they would only spend money occasionally on outside counsel? Not so! Out of a typical law department's total budget, 40 cents of every dollar is spent inside while the larger share, the other 60 cents, is spent on outside counsel. Why is that, and what are some insights regarding that well-established ratio?
Before we comment on the ratio, let's understand our key terms. As to "inside spend," three-quarters of a typical law department's budget is related to the pay of lawyers, paralegals and other staff (base, bonus, benefits) while the rest goes to supporting them — facilities charges, software and hardware, cross-charges for services from other corporate functions, travel, CLE, publications and so forth. Bear in mind that some of a company's expenses that benefit the inside legal team (but that law firms cover for their staff) may not hit the law department's budget: Security guards, infrastructure, severance or the value of granted options and restricted stock may stay in other budgets.
