$2/$ Northeast Reinsurance Company is growing rapidly. As it has grown, it has added legal

staff to provide for it's legal services. One of the principals of the company is an attorney

who has provided oversight over the growing legal department. However, she is now too

busy to continue this "legal counsel" role. She suggests that the senior company attorney

become an officer of the company and be given the title "legal counsel and secretary$".$

Another of the principals is good friends with and an attorney at a prestigious regional law

firm. That law firm offered to provide Northeast with legal services for an annual retainer of

$$500,000$ plus an average billing rate of $$100$ per hour for all work done over $5,000$ hours

per year. It is expected that legal work, whether done inside or outside the company, will

require about $6,000$ hours this coming year and will probably increase by $10\%$ a year

thereafter. The current company legal staff may be able to handle the workload for two

years before it will have to hire another attorney $($at an expected salary and benefit package

of $$100,000.$ Other variable costs are expected to increase by $5\%$ a year.

Required:

What are the relevant costs for Northeast to consider in making this decision?

From a financial standpoint, should Northeast continue to use its own legal department

for legal services or outsource this function to the regional law firm?

What other factors might Northeast consider in making this decision?