In-House vs. Outside Counsel: Choosing the Right Option

When it comes to how to deploy the legal budget, most GCs face a constant push-and-pull.

Keeping legal work in-house is often more cost-effective, but ever-growing workloads put a strain on the legal department’s capacity. However, with outside counsel rates continuing to rise, outsourcing work to law firms can quickly become untenable.

Add in the need for specialized legal expertise, and tight expectations around legal service delivery, and the question of whether to use in-house vs. outside counsel becomes even more complex.

Expertly striking this balance, however, is a key component in solidifying legal’s reputation as a strategic partner to the business. Here’s how to get it right.

What Is In-House Counsel?

To start, a quick definition: In-house counsel are attorneys employed directly by a company. Their primary responsibility is to provide legal advice and guidance to the company’s executives, managers, and employees. Because they work for the business, they possess an intimate understanding of the company’s operations, goals, and legal requirements.

What does in-house counsel do?

In-house counsel are responsible for a range of legal and related functions around the business, including:

• Risk management: In-house teams play a key role in identifying and assessing business risk, and ensuring legal and regulatory compliance.
• Advising other business units: In-house legal services also include advising internal teams on legal matters and regulations, enabling them to make legally informed, strategic decisions.
• Overseeing outside counsel: The legal department is responsible for sourcing and engaging outside counsel, as well as ensuring the cost efficiency and value of outside engagements.
• Delivering in-house legal services: More generally, in-house counsel provides day-to-day legal services, including managing and overseeing legal matters, and pursuing results that are in line with company objectives. This includes handling contracts and the legal aspects of major business activities, such as mergers and acquisitions.

What Is Outside Counsel?

Outside counsel are third-party vendors that provide legal services and legal advice. They handle large, novel, or complex legal matters, such as litigation, and often have a deeper bench of attorneys with more specialized experience than in-house teams.

What does outside counsel do?

In-house teams typically engage outside counsel for:

• High-stakes matters: Outside counsel are often engaged to handle high-stakes issues that the internal team cannot manage on its own.
• Specialist expertise: Outside counsel often have specialized expertise in areas that the in-house team doesn’t, such as antitrust or IP law, data privacy, etc.
• To support peak workloads: Many teams also outsource “overflow” legal matters to external teams, but it’s worth noting that this isn’t always cost-effective.

Where Do Alternative Legal Service Providers (ALSPs) Fit Into the Mix?

Engaging Alternative Legal Service Providers (ALSPs) is another option for in-house teams looking to outsource legal work at a lower rate. These specialized service providers offer a range of legal services outside the traditional law firm model, leveraging technology and process efficiency to deliver:

• Document review and e-discovery at scale
• Contract lifecycle management
• Regulatory and compliance support
• IP management services
• Risk assessment and due diligence

Corporate legal departments generally outsource high-volume, repeatable tasks such as discovery or contract management to these providers, though many are now turning to legal tech solutions to handle them.

When to Use In-House Counsel

In-house counsel can be a valuable company resource in many situations due to their in-depth knowledge of the organization and its values and priorities. Here are some of the key examples of when a company should consider continuing to work with its in-house team:

Day-To-Day Legal Business

In-house counsel provides a more cost-effective solution for routine and predictable legal needs than outsourcing to expensive law firms. They can manage tasks without the additional overhead of instructing external legal counsel.

They can also help maintain legal budgets by judiciously deciding when to engage outside counsel, such as when a seemingly simple or routine legal question for the business actually raises complex, niche, or high-risk issues.

Policy Development and Enforcement

In-house counsel should play a key role in ensuring company policies are legally sound and that employees adhere to those policies to minimize the organization’s legal exposure. They should also update their policies to align with changing laws and business practices. Again, in-house counsel may decide to engage outside counsel if particularly complex questions arise during policy development.

Internal Business Strategy

In-house counsel have deep knowledge of the organization’s needs and the relevant laws governing the company’s work.

To work effectively, however, the in-house team must collaborate closely with other business divisions. They should also know each division’s goals and activities to provide proactive, helpful legal advice.

Regulatory Compliance

We’ve touched on this above, but it’s worth reiterating that ensuring regulatory compliance is a key function of the in-house team, and they have a better business context for this than most external partners would.

That said, many industries must navigate an increasingly complex regulatory environment. Data privacy laws like the General Data Protection Regulation (GDPR) and the California Privacy Rights Act (CPRA), along with a confusing tangle of environmental, sustainability, and governance (ESG) rules, all promise to expand the number and types of industries touched by state, federal, and international regulations.

Meeting these changing regulations requires a combination of in-house and external legal expertise.

Contract Drafting and Negotiation

Contracts are the lifeblood of the business. In some cases, ALSPs handle contract reviews to reduce cycle times, but in-house counsel should still review and draft the templates for those contracts.

This is because in-house counsel know how to ensure a contract aligns with the company’s goals and needs while providing adequate protection and risk management. They can also help resolve any disputes occurring during the negotiation process.

Employee Relations

In-house counsel, in tandem with HR, should also be involved in guiding policies on hiring, termination, compensation, benefits, and workplace safety. In addition, many companies need both in-house and external expertise for sensitive issues such as discrimination claims, harassment allegations, or disputes with labor unions.

Intellectual Property

While the IP registrations might be best left to an alternative legal service provider, the internal team develops a company’s IP strategy. They should work with the research and design team to understand their plans, draft registration plans, and determine when to end patents or trademarks that are no longer in use to improve cost efficiency.

Litigation and Dispute Resolution

Litigation and dispute resolution can be costly and time-consuming, but they are sometimes necessary to protect a company’s interests. In-house counsel advise on dispute resolution strategies, including negotiation, mediation, and arbitration.

They can also represent the company in court, working closely with outside counsel when specialized expertise is required.

When to Hire Outside Counsel

While in-house counsel can handle many legal issues, there are times when it makes sense to bring in external legal counsel.

Importantly, however, you want an outside counsel team that understands your industry, the regulatory environment in which you operate, your competitors, your company’s corporate vision, and long-term growth drivers.

Here are some of the key situations when a company should consider hiring outside counsel:

Litigation and Dispute Resolution

As noted in the previous section, in-house counsel plays an important role in advising on dispute resolution strategies, including negotiation, mediation, and arbitration. However, as matters progress without a speedy resolution, hiring outside counsel with litigation experience is often the best choice.

An outside legal team can often provide a fresh perspective and offer strategies and tactics that in-house counsel may not yet have considered. Additionally, outside counsel can help reduce the burden on in-house counsel, allowing them to focus on other legal matters.

International Legal Matters

Companies that conduct international business may also face legal issues that require the expertise of outside counsel. International legal matters can be complex and require an understanding of local laws and regulations.

Hiring outside counsel with experience in other jurisdictions can help ensure that the company complies with local laws and regulations. Additionally, outside counsel can help companies navigate cross-border legal issues, including contract disputes, intellectual property issues, and compliance matters.

Legal Matters That Exceed the In-House Team’s Bandwidth

In some cases, a company with a small or overloaded legal team may need help handling a sudden influx of legal matters. Especially at a time when in-house teams are facing the double whammy of headcount freezes and increased workload.

If in-house lawyers are feeling overwhelmed, delegating work to outside counsel or an ALSP for a while can give them the space they need to focus on their work and deliver better results.

And by hiring outside counsel or an alternative legal service provider on an “as needed” basis, companies pay only for the additional legal services they need, rather than hiring additional in-house counsel long term.

Niche Work Outside the In-House Team’s Experience

Outside counsel is often used to provide specialized expertise in niche legal areas where in-house teams may lack experience, such as emerging technologies, complex tax structures, or specific regulatory frameworks.

This can help companies to adapt to rapidly evolving legal landscapes in specialized fields, ensuring compliance and strategic advantage.

For an Impartial, Macro View of the Business

Finally, companies are increasingly turning to legal teams for advice on company strategy – both as it relates to legal matters and in more general terms. But while the role of strategist is an important one for in-house teams to step into, there are still times when an outside perspective is useful.

Outside counsel can offer an unbiased analysis of business strategies, legal risks, and compliance issues, free from the internal politics and biases that may affect in-house teams.

They can also serve as mediators in internal conflicts, providing a neutral viewpoint that helps resolve disputes objectively.

Understanding Your Legal Spend

Finally, whether you choose to keep tasks in-house or outsource them to a firm, the last thing to consider is your current legal spend.

To make informed decisions, you need visibility into how many matters your legal team is currently working on and how many are sitting with outside counsel. It’s also important to understand whether your chosen outside counsel is using their resources effectively. You don’t want partners’ billing time working on discovery, but you also don’t want an important legal strategy set by associates.

Outcomes also matter. GCs need a way to track which outside counsel are resolving matters efficiently while securing positive outcomes and demonstrating good billing hygiene.

That’s where an enterprise legal management (ELM) system, like Brightflag, comes in. Legal departments use tools like Brightflag to conduct regular vendor spend analysis. That historical data can then be used to inform future budgets, and the legal team can estimate how changing variables, such as the fee arrangement, might make outsourcing more (or less) cost-effective.

Making the Decision

And that’s it. Armed with the above, legal teams and GCs can make better-informed decisions about when to keep tasks in-house and when to consult outside counsel for a particular legal matter. The decision might not always be cut-and-dry, but knowing the strengths and limitations of each option can go a long way towards making decisions that ultimately benefit your organization – legally, strategically, and financially.

Interested in learning more about how Brightflag gives you the data you need to make the right call? Book a demo today.

FAQs

What does in-house counsel do?

In-house counsel provides day-to-day legal support across the business, including risk management, compliance, contract handling, and advising internal teams on legal matters and strategy. They are also responsible for aligning legal outcomes with business goals and objectives.

What is the difference between in-house counsel and outside counsel?

In-house counsel versus outside counsel comes down to the level of integration into the business and the scope of services provided. In-house teams handle ongoing legal needs internally, while external legal counsel is typically engaged for complex, high-stakes or specialized matters.

What is the difference between in-house counsel and a law firm?

“Law firm” is simply another way to refer to an outside counsel partner. They differ from in-house counsel, who cater to a business’s day-to-day legal requirements, in that they are primarily engaged to provide specialised support and expertise for complex matters as needed.

What is the difference between in-house counsel and general counsel?

General counsel refers specifically to the role of a senior legal leader within the in-house legal team. They head the legal team and operate across a range of high-level considerations, including risk management, strategy, and internal and external resourcing.

When should a company hire outside general counsel services?

Companies should engage outside counsel for complex litigation, international matters, IP and antitrust issues, and any other matters that the internal team lacks the expertise or capacity to handle. Importantly, however, the in-house team should closely track spend on external counsel to improve the value and service delivery the legal team receives from outside partners and vendors.