As a longtime in-house counsel, I constantly debated when to send work to outside counsel and when to keep it (or bring it back in). It was a surprisingly difficult task. As an outside lawyer, my hope now is that my clients will want to send more work to me and the firm (hint!). But my in-house lawyer DNA tells me that most general counsel are trying to find ways to keep more work with the legal department. And the data backs me up here. Around 40% of US-based legal departments moved work from outside counsel back in-house. That is an incredible statistic as it means that not only are in-house departments keeping work, but they are more frequently taking it back from their outside lawyers. While this change in direction may be primarily driven by budget forces, there are other factors at play. This brings me to today’s edition of “Ten Things,” i.e., what factors should you look at when deciding when to send work to outside counsel and, more interestingly, when to bring it back:
1. Do you have a choice? Figuring out when to send work out or when to bring it back starts with a fundamental question – do you have a choice? Don’t laugh. There are plenty of legal departments, especially small one or two-person departments that literally have no budget for outside legal advice. This means, no surprise, they never send work to outside counsel and simply make due the best they can on their own. I have never been in this position, but I am aware of such situations. While nice in theory, the first time the company finds itself as a defendant in a lawsuit this position will likely (have to) change. Similarly, many general counsel don’t have the authority to directly hire outside counsel. The decision to do so sits solely with the CEO or CFO. You see this most frequently in smaller companies. In such cases, the general counsel must make the case to the decision maker who decides the “if” and, often, the “who.” I would find this to be a very unfun way to practice law in-house. Regardless, the decision is easy when there is no decision to make.
2. Do you have the money? Assuming the legal department does have the ability to engage outside counsel the single largest factor becomes money, as in “can we afford outside counsel for this project.” While no legal department has unlimited funds, there are many legal departments that have generous budgets with money specifically set aside for outside counsel to handle different types of legal work. This is the situation I am most familiar with. Other legal departments, however, have a small amount of budget that must last for the entire year and that they must allocate on an as-needed basis as issues arise. While certainly better than having no budget, it puts a lot of pressure on the general counsel to determine what type of legal matter is “worthy” of outside counsel spend and which is not. It also requires that the general counsel conserve money so that there is always something in reserve should the need arise later in the year. That is, you cannot blow the whole wad of cash on one project in February unless you are prepared to have no further budget for outside counsel spend for March through December (See No. 1 above). But, if you do have money for outside counsel, you must think about your process for doling out those dollars either because you need to or you want to. More on that below.
3. Do you have the people? Perhaps you are very fortunate and money is not an issue for the legal department. If so, then sending out work to outside counsel is a much easier decision. Yet, even so, you still need to decide what to send out. The “what” in large part depends on the people you have on your team. If it’s just you, then you – I hope – have a pretty good understanding of your skills and abilities. If not, you will need to spend some time understanding what the members of your team are capable of (or what you want them to learn). Generally, the bigger the legal department the greater the ability to keep things within the team vs. sending work out. But, even if you have a good size team there will likely be legal issues that no one has the right background to handle. For example, most in-house legal departments are not equipped to handle large M&A transactions internally. That type of work must go to outside counsel. Similarly, sophisticated ERISA or tax questions go outside. The solution is to create a skills chart and ensure that you know what your team cannot and cannot handle. And that you keep it updated as attorneys gain new skills or enhance existing abilities. This will allow you to look internally with more confidence before sending something outside.
4. What does the math tell you to do? Of course, there is math involved with today’s post. Yay? Fortunately, it’s pretty basic. But, it is important. When deciding whether to send work out or keep it, it is key to understand the cost of doing so, or if you have been sending work out, what savings are generated if you bring it back in-house? Here are some things to measure:
- What is your overall outside counsel spend and how much could you save by bringing on someone in-house to handle the work that is going outside? This requires that you understand the fully-loaded cost of the new attorney (salary, bonus, equity, taxes, bar fees, office space, etc.) and how many hours of legal work you will get per year from this attorney. Given that about 10% – 20% of an in-house lawyer’s time is spent on non-legal work (meetings, administrative, business, etc.), be realistic here, i.e., you may only get 1,000 to 1,300 hours of legal work per year. Use this number to find your effective hourly rate and then compare that rate with the rate you get from outside counsel.
- I also like to calculate the lost opportunity/lost deals cost of not sending work out. For example, it is fairly common for most companies to have surges in commercial agreement work at the end of each quarter and the end of the fiscal year. If you do not have enough hands to do all the work internally, how many contracts don’t get done and what is the value of those “lost” contracts. Compare the value to the business of getting those contracts done with the cost of sending them to outside counsel. The math is likely pretty compelling.
- Lastly, if I have the budget for outside counsel, what happens if I don’t spend it? My experience is that if there is a lot of unspent budget for outside counsel odds are good that I will lose a big chunk of that money next budget year as “unneeded.” And we all know that many factors can impact the need to spend outside. In such a case, it makes sense to hold some of your budget back as you watch the year play out. But, as the surplus builds go ahead and start to spend a chunk of it with outside counsel, especially if you are near year-end and have a large stash of cash built up. Sadly, you don’t generally get a lot of credit for significantly underspending. Or as the saying goes, no good deed goes unpunished. So, be smart and think about next year.
5. Do you have the right outside counsel? Another important factor when deciding to send work outside is whether or not you have the right outside counsel lined up. Am I going to pay $600 an hour for help with contracts when I can find the same quality of lawyer who will do it for $350 or even a flat fee? Do I have outside counsel that has made the effort to understand my business so that their legal advice is more tailored and not so generic? Is my outside counsel willing to partner with me, e.g., give me some free hours every month to just talk with them about issues and problems? Smart outside lawyers know that being willing to listen to my concerns without looking to charge me for every nickel means that if something substantive does come out of the issue we have been discussing, they will likely get the work. Moreover, am I thinking about boutique law firms, solo practitioners, or panel firms where the quality is high but the cost is significantly lower? Have I considered alternative legal service providers? In short, before I send anything outside, have I analyzed the lay of the land and have a good sense of all of my options, and am confident that I am sending the right work to the right firm at the right price point? If I have done my homework, then both I and the CFO will feel good about the work I do send out when the need arises.
6. Can technology help? More and more, access to technology drives decisions on what work goes outside and what stays in the department. For example, if I have access to a state-of-the-art contract assembly tool (especially one that permits the business to create appropriate contracts without contacting the legal department), I am far less likely to need to send contracts outside. Equally true, is that such a system will permit my team to focus on higher-value contracts or, potentially, shift their focus onto other legal work as the demand for their time to work on contracts has lessened. This other legal work is work that would have potentially gone outside or simply not gotten done. While not yet perfected, but definitely on the horizon, are tools driven by artificial intelligence that can make redlines, taking the first cut at one of the most time-consuming tasks for in-house lawyers. But, you don’t need super-sophisticated technology to enhance your team’s productivity; standard templates, checklists, and collaboration tools can dramatically increase the amount of time in-house lawyers have available to spend on different types of work. Even if you were only able to save one hour of time over the course of a week, that is roughly 52 two hours per year or a full week of attorney time! A little bit can go a long way.
7. What’s best for morale? While dollars are generally the driver of what goes to outside counsel and what stays within the department, you cannot overlook the power and importance of department morale on the decision. I get it that it may strike you as strange that “feelings” matter when it comes to assigning legal work, but they do. Imagine the message you are sending to your team if you are assigning all of the cool, challenging work to outside lawyers. Basically, you are telling them that you’re not good enough to work on these types of matters. That may be true in some instances. For example, most in-house legal departments are not set up to respond to pleadings in litigation. But, it’s worth your time to consider the skills of your team and what constitutes the right “mix” of work to send outside, ensuring that at least some of the most challenging work is reserved for your own team (or at least that you have faith in them to give it a shot). A team that feels valued is a team that will perform better.
8. Are you burying your team? And now for the flip side of No. 7! It’s possible to give too much love to your team, i.e., you are burying them with work. I think all in-house lawyers understand that there will be times when weekends and evenings are needed to work on important projects, but if it becomes most weekends and most evenings you will burn out your team and quality will sag, or worse, people will start to quit. As a long-time manager of people, I can tell you firsthand that the pain of replacing someone who is a regrettable departure dwarfs the pennies you are saving by not finding ways to reduce the workload, either by sending work out to overflow counsel or simply saying “no” to the business (which cannot have champagne service on a beer budget). When things are running too hot you need to find a way to cool things off. However, you can use the fact that work is not getting done and the company is leaving money on the table or living with higher risks in contracts as a way to try to leverage more resources for the legal department.
9. How visible is the project? Another factor to consider when deciding whether to send work outside or keep it is how “visible” is the project to internal stakeholders. By this, I mean the C-Suite, the board of directors, the heads of business units, and even the general counsel or CLO. High visibility of a legal matter usually means there is a large amount of risk associated with it, i.e., a high risk of something significantly bad happening or (since not all risk is “bad”) a significant risk of good things happening if the matter isn’t thrown off stride by something. An example of the former is bet-the-company litigation where losing means very bad things for the company. An example of the latter is a merger or acquisition where succeeding means very good things for the company (but failure will result in finger pointing and crimination). This means that a general counsel needs to think through whether or not to keep a highly visible matter in-house or send it to outside counsel. Usually, these types of matters go outside because not only are the stakes high but there is consensus on the business side of the house that outside counsel is needed. If a general counsel keeps such matters inside and something goes wrong, it will be a long walk to the parking garage with their box of personal belongings. Still, there are times when highly visible work can – and should – stay in-house, especially when the in-house lawyers have the experience and skill set to handle the work, e.g., an important contract negotiation. Success will reflect very well on the department and the odds of failure are low (or at least the odds of failure being blamed on the legal department are low). Still, it’s a delicate balancing act at times and, with experience, general counsel learn how best to direct certain types of high-profile matters.
10. Create a process to help you decide. There is nothing wrong with deciding where to send legal work on an ad hoc basis. My preference, however, is to have a process in place to help me decide. It can be a list, a checklist, a flowchart, or decision matrix, or whatever. Having a systematic way of looking at matters and being able to decide quickly (and correctly) whether it belongs inside or outside is an excellent tool to have around. For example, it’s easy to make the call that all litigation (filed in court or arbitration) goes to outside counsel. It’s just a matter of deciding whether I have the right firm and the right price for the dispute. For other types of work, I have made lists of matters that stay in-house and those that go outside. I have created checklists (see No. 1-9, a ready-made checklist). Alternatively, I have used a 2×2 or 3×3 matrix to help decide. Below is an example of such a 3×3 matrix. The X axis (bottom left to right) tells me how much money I have to spend on outside counsel, running from low to high. The Y axis (left side bottom to top) tells me how sophisticated the work is, running from simple to highly sophisticated. When I have a high budget and need high sophistication, I send the work “out.” When I have low budget and low sophistication, I will keep it inside (“in”). There are some places in the 3×3 where I can go either way, i.e., keep it or send it out depending on the circumstances (“in/out”).
It doesn’t really matter what you use. The important thing is to have some type of orderly process to help you make decisions about where work goes. But don’t fall for false precision. These tools are guidelines, not laws from above carved on stone tablets. As with most things, your judgment and common sense will lead you to the right answer no matter what it says on the chart.
One of the most important tasks faced by in-house lawyers is deciding what work will be done in-house and what gets sent outside. Above I set out the many factors at play, the most important being whether you have the budget to spend on outside counsel. If not, then the answer is easy. If yes, then you still need to weigh many variables and have a stable of different outside lawyers that can offer the right service at the right price, anywhere from high-cost bet the company litigation or strategic M&A to low-cost contract overflow work. The key is having a process to help you think through all the issues before deciding. Not only will you make better decisions, but you will also show the business that you are managing your budget like any other part of the business and intensely focused on value generation or limiting value destruction. That’s as good as it gets.
July 28, 2022
I have started working on book number six. But, my fifth book, Showing the Value of the Legal Department: More Than Just a Cost Center is available now, including as an eBook! As the ABA says, “Buying this book will make the summer cooler!” The ABA knows what it’s talking about so just buy a copy of the book and save on air conditioning. You can buy it HERE.
Two of my books, Ten Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies and Ten (More) Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies Volume 2, are on sale now at the ABA website (including as e-books).
“Ten Things” is not legal advice nor legal opinion and represents my views only. It is intended to provide practical tips and references to the busy in-house practitioner and other readers. If you have questions or comments, or ideas for a post, please contact me at email@example.com, or if you would like a CLE for your in-house legal team on this or any topic in the blog, contact me at firstname.lastname@example.org
 Except perhaps on Sugarcandy Mountain in George Orwell’s 1984. That said, if you have an unlimited budget let me know. I want to work for you!
 See my blog post on creating a legal department budget, Ten Things: How to Prepare an Annual Legal Department Budget.
 See my blog post on succession planning for more on this, Ten Things: Succession Planning for In-House Legal Departments.
 I swear on a stack of elegantly bound bibles that I will write a Ten Things post about ALSPs!
 See my post on artificial intelligence at, Ten Things: Artificial Intelligence – What Every In-House Legal Department Really Needs to Know.
 Check out my post on using small accomplishments to get big results at, Ten Things: The Productive Power of “Little Things.”
 I talk about how to do this in the last chapter of my new book, Showing the Value of the Legal Department: More Than Just a Cost Center.