Law Department Budgets - Internal Benchmarks for External Service Providers
While external benchmarks can be helpful in evaluating legal service provider rates, there is no better benchmark than what you pay your own legal staff. In the last segment we addressed how to calculate your fully-loaded internal hourly rates. To my knowledge Halliburton was the first company in the early 2000s to cap external legal rates at rates consistent with what they paid their own staff.
If you are paying for expertise you do not possess in house, then a premium over your internal rates makes sense. Presumably this would be the case for individual named senior attorneys, or other highly specialized professionals, only.
The rest amounts to workload overage support. In this case one might pay a reasonable mark up above what you pay your own staff, say 10-20%. For this small premium you are ceding day-to-day supervision to the legal service provider and retaining flexibility in staffing.
Even if you are not ready to move to this sound fiduciary position, you should consider a second internal benchmark: Your company’s annual merit increase and bonus payments. In reviewing firm proposed rate increases, you will not want those increases to exceed what you will be paying your own legal team.
Extraordinary performance is always an exception. Again this should be determined on a named individual basis and not a firm-wide basis. In this category your internal and external exceptional players should be weighed against the same criteria. It is a rare external provider indeed who can match the inside business knowledge of an internal high-performing employee.