A calculation of value added by a law department

A large legal department has claimed savings of tens of millions in a year by an interesting calculation. The calculation starts with the total hours billed to clients by the department’s timekeepers (both lawyers and paralegals). [Yes, the department makes its professionals track their time and charge it to clients.]

Those hours billed totaled what the department states are its internal costs. Simple division shows that the blended rate was about $200 an hour, meaning that lawyers alone were likely to be around $250 an hour.

The interesting twist is that the department matches its internal hours worked to the hourly rates of outside counsel and paralegals at what they deemed to be equivalent levels. By doing so, the department has made much of the claim that if the company had used law firms to do the same amount of work, the company would have paid scores of millions more. Stated differently, the differential between the blended hourly rate of its law firms and its internal, comparable rate, is huge.

The calculation and claim raises a host of Issues. Does the department include the full costs of its inside counsel, especially the reality of their asserted chargeable hours? Companies staff for valleys of work so a premium for overflow makes sense. If the department chooses expensive firms, the “savings” look larger. Are the lawyers actually doing the same work?