How to be sure moving legal work in-house is the right move

This article is based upon the Practice Note, “Saving Costs by Bringing More Legal Work In-House,” one of the more than 65,000 resources available in Practical Law.

In the past few years, there has been a trend to move more legal work in-house. According to the first annual report produced by Thomson Reuters and Acritas, in 2013, only 37 percent of the legal budget was spent in-house; by 2017, that percentage had risen to 43 percent. (2018 State of Corporate Law Departments: Innovation, Data and Collaboration Drive Optimal Results, Thomson Reuters and Acritas)

Although saving legal costs is a major force behind this trend, there are many other benefits to moving legal work in-house, provided the law department has the internal resources to handle these matters competently, efficiently, and cost-effectively.

If the department has such resources, then the next step before making a final decision to move matters in-house is to perform a thorough cost-benefit analysis. Essential elements of this analysis include:

• Current and anticipated tasks and responsibilities and their relative importance in supporting the company’s business objectives
•  Size and organization of the law department
• Staff and their skills, expertise, experience, and workload
• Ability to minimize potential inefficiencies resulting from taking legal work from outside counsel who may have provided legal services to the company for many years
• Budget
• Volume of complex versus commodity work
• Outside counsel spend on company legal matters broken down by:
  • Law firm
  • Responsible in-house attorney
  • Hourly billing rates for each outside attorney providing legal services

A further point of comparison is to compare the hourly rate of outside counsel with that of an in-house attorney. To determine the in-house attorney’s hourly rate, take the cost of that attorney’s salary and benefits and divide by 2,000 hours of work. Typically, you’ll find that the in-house rate is easily one half or even one third that of outside counsel.

If you determine that moving work in-house is both cost-efficient and plausible for your organization, the next step is to evaluate the staffing in your department and prioritize the matters to pull back.