Having an in-house attorney might seem like an obvious, inevitable step along the path of a growing company.  But when does a company become “big enough” to need (and justify the cost of) in-house counsel?  Is that question driven by the number of employees?  Gross revenue?  Multiple physical sites?  There is no benchmark answer, but on balance companies with 100 or more employees are more likely to have made the decision to have an attorney on staff.  Likewise, smaller companies less frequently hire in-house counsel.  So, how does the concept of in-house counsel fit into the strategic decision making for a company in California’s construction industry?  And what are the plusses and minuses?

The reasons are different for every company to hire in-house counsel.  But a few key considerations should be kept in mind.

The Evidence in favor of Hiring In-house Counsel.

A key, threshold consideration in deciding whether to hire an in-house attorney is what exactly will that attorney be expected to do?  Given that it is typically not possible to hire one attorney who will have the skills needed to cover all the legal needs of a company large enough to need its own in-house attorney, it follows that writing the job description for an in-house attorney is of primary importance.

A construction company has specific needs. Potentially, the common needs could indeed be met by an in-house attorney.  For example, an in-house attorney might bring expertise in construction liens and related collection work that is of unique importance to a contractor. But the potential for such a lawyer to also have equal acumen with the nuances of California employment law is low.  Again: Knowing what is of primary importance to the company should drive what type of attorney makes sense to bring into the fold as in-house counsel.

Another key reason for hiring in-house counsel is availability. There can be efficiency built-in to the option for a business owner to quickly contact in-house counsel, rather than attempting to reach (and pay) a lawyer with a private firm.  But whether as a practical matter that is effective will depend on a case-by-case basis on whether the company’s in-house counsel has the skills needed to address the particular legal issue of the day. (Not to mention the larger consideration of having an in-house legal department, with a team of attorneys who have a breadth of skills.)  Likewise, whether efficiency should drive the decision of hiring in-house counsel may be affected by whether the company does or does not have an existing relationship with a private firm that can serve as “outside general counsel.”

The other side of the coin.

The fact is that no attorney can provide effective legal counsel on every issue that arises for a construction – or any – company.  Consequently, it is imperative for business owners to recognize that in many cases the most important role of an in-house attorney is to hire and manage outside counsel who are engaged to address particular issues or problems, such as litigation.   That is not to say in-house counsel cannot play a useful, cost-effective role for a growing business even if, as a practical matter, the in-house counsel does not eliminate the need to use private attorneys as well.  Entrusting in-house counsel with the management of all legal tasks – even those that require engaging outside counsel – can allow business owners and business development executives to focus on what they’re good at and what makes money for the company.  And in this role the in-house counsel can become a valuable, complementary part of a management team.  Far better for a busy construction company owner to focus on getting work in the door, done, and paid than being frustrated with legal issues that, perhaps, could be managed by an in-house attorney.

Having in-house counsel does not eliminate the usefulness of effective “outside” counsel.

Being in business means taking risks.  With risk comes potential reward.  But managing risk – and avoiding unnecessary risk – is part of any successful business plan.  Companies that rely only on in-house counsel accept some additional risk that can be shifted by having outside counsel.  This is because lawyers can make mistakes.  If a mistake is made by in-house counsel, the potential for the company to be able to shift the financial ramifications of that mistake is reduced compared to the options when a private law firm is involved.  Private law firms carry professional liability insurance and private law firms can be sued for damage caused by their mistakes.  By contrast, pursuing an employee who is in-house counsel is a problematic, uncertain process to say the least.

Closing arguments: So, is it worth having in-house legal counsel? The answer will be different for each company, and the answer may change over time as a company grows or faces new challenges and opportunities.

When considering whether to hire in-house counsel, owners of construction companies should first prioritize ensuring the legal advice provided to their company is competent.   Likely, that means there will always be a need to have private counsel available to address specific, fast-moving, or nuanced legal questions that in-house counsel lack the experience to handle.  And the middle ground is finding a relationship with a private law firm that provides key benefits of in-house counsel (availability, reliability, and value) without the inherent shortcomings.  As construction professionals know best, teamwork is essential to getting projects done right.  And having exactly the right tool for the job is essential.  Private law firms typically have a larger tool box than an in-house legal department and can serve as a valuable part of a construction company’s team.

 

Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects.

You can find additional information and resources related to helping business owners and their businesses through COVID-19 challenges on the DDWK website.

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