Editor's Note: This is the second post of a two-part question and answer series where industry leaders answer webinar attendees’ questions on all things cost recovery. Check out the first part here.
When it comes to recovering litigation expenses, including e-discovery costs, law firms have a lot to consider. Firms may be faced with any number of questions: Will my clients be receptive to this billing model? How do I handle attorney carve-outs?
During a recent webinar, industry leaders walked attendees through their law firms’ journeys to implementing a cost recovery approach for e-discovery.
The panel—Kevin Clark, litigation support manager at Thompson & Knight; Kimberly Fisher, practice support manager at Dickinson Wright; and John Koss, e-discovery Counsel at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo—had the opportunity to respond to attendees’ questions on recovering these expenses and provide information on how they too can successfully move to a cost recovery approach.
Want to watch the full programming? Check it out here.
Question: If you have a firm with offices in varying areas of the country and different markets, how do you develop a cohesive cost model across those geographies?
Kimberly Fisher: What we did when setting up our billing model was to interview different firms, vendors, and companies on a national and local level. We received their pricing information and we did a comparative analysis to look at the information for both local and national markets.
Kevin Clark: I don’t know if the different markets are that much different nowadays. There has been a lot of consolidation on the vendor side and the pricing has seemed to even out. It will change overall, but that hasn’t been an issue [for us] where one market is vastly different than another market. By doing an overall analysis, you can get a competitive number without much issue.
Q: Regarding cost recovery communications to clients, does transparency always equate to providing as much data granularity as possible when it comes to breaking down hosting costs?
JK: I want to understand the client's level of interest because we can tweak these things based on that. I err on the side of transparency being a good thing. We provide our vendor pricing schedule, which lays out every single dollar that will be spent along with a cost forecast. So, if that is something that a partner is interested in or the client requests, I am more than happy to provide it. I'll stand behind our pricing all the way. I try to look at this more as: “What is this particular engagement going to look like?” “What will this client expect?” “How much does this partner provide in terms of a cost forecast for other aspects of this case?”
If the bill for services rendered is $2 million, maybe don't dive into every line item for litigation technology. Nowadays with billing software and the very close, precision-like analysis of legal bills, where budgeting and cost forecasting is extremely detailed as to the number of hours spent on every task, I have no problem including per gigabyte charges for processing or hosting or licensing fees. If a partner wants that broken down, own it. You're going to make your vendor partner do it that way. It depends on perception. If there is a perception of us hiding something, then I am going to put it out there. But, if it's a perception that the client doesn’t really need to know that level of detail and they are more comfortable with a rolled-up, overall forecast of what these costs are going to look like compared to or in addition to the legal services we are receiving, we will provide that in a lump sum. I would talk to the partners who are going to be the ones you need to evangelize this approach. Get with people who you believe will have clients who will be supportive and test your messaging with that market.
Q: Have you ever started charging data hosting costs for matters that have already been initiated?
KF: This situation is difficult. Typically, it involves a lot of conversation with the client. The client needs to understand why the firm is going to start charging for data hosting. Discuss with the client that secure, reliable, and defensible data hosting can be costly. Prepare to provide the client with estimates for data hosting and services provided by the firm and by a few vendors. Outline the benefits for the services provided by the firm and the benefits of that relationship and not involving a third party.
Q: If switching from cost absorption to cost recovery, do firms include this information in their engagement letter so clients are aware of potential costs? And if so, are specific costs listed, or more general info on potential costs?
JK: This will vary for each firm. I would suggest you think about a cutover point. It may not be the easiest to do, but what you will do is institute a rollout date. For any new matters from that point forward, you will include information in the engagement letter, and say that is the pricing going forward. Anything prior to that, you grandfather in. That may not work when you have a client with ongoing work. It will be challenging to introduce a rate increase in the middle of a case; not every client is going to accept that. You might want to do a two-pronged approach if you are attempting to roll it out without a definitive cutoff whereby you work with each client to gauge their temperament to it. You let them know the policy going into place and you add that cost. If they push back, you can negotiate something in the short term and in the long term, do the rollout. You will want to include all this information in the engagement documentation on a go-forward basis beginning on a certain date with new matters included.
On the pricing piece, I don't have a yes or no answer. I think it is about giving more insight into those fees. Look at your engagement documents. How specific are you about photocopying or meal costs or overhead? What is the level of specificity there and in respect to technology resources from an hourly perspective? What is the attorney rate? Make this no different. The engagement document doesn't need to be completely reimagined for litigation technology expenses. I would incorporate it and harmonize it with the specificity included on other fees and services. Regardless of whether you are more specific or more general, I would roll out to the client at some point the schedule of fees prior to the first invoice they get so they understand what you are trying to do. This can be in the engagement document or a separate conversation you might have.