Thursday, November 15, 2012

The Decline of Cost Recovery For Online Legal Research: Two Reports Track Trends


Today the ABA Journal published an article  "Firms Wave Goodbye to Billing for Online Research Costs" which highlights two recent reports on law firm cost recovery for services such as Lexis and Westlaw. While the article is informative,  I take exception to the author's comment that "firms haven't historically passed along (online research) discounts to clients." If there was a time when that was the norm – it is now ancient history.  At least in firms sophisticated enough to have a full time Library Director to inform their cost recovery policy... there is a significant effort invested in developing a methodology for giving clients a discount aligned with the firm's flat fee contract.

Clearly the emergence of flat fee contracts in the early 1990's created challenges for firms in establishing an appropriate discount that would allow them to pass on the benefit of the flat fee to clients, but the majority of AmLaw 100 firms do make that effort! And contrary to a popular misconception, this doesn't violate the ABA Code of Professional Responsibility, as long as the client is informed of how they will be charged. This is usually done in the retainer letter or an annual letter regarding firm cost recovery policies.

Bloomberg Law published "Law Firm Cost Recovery Research". The report examines past,  current and expected cost recovery practices used by law firms. The survey targeted large, medium and small law firms. Since Bloomberg Law has been positioned as a non-metered system that lawyers should use, as needed, instead of worrying about cost recovery, they have a special interest in riding the tide as it ebbs away from online cost recovery.

 Key findings:

·         Law firms are recovering less of the research costs than they were 2 years ago.

·         The downward trend in the amount of research costs being recovered is most dramatic at medium and small law firms, despite the fact that those same law firms are more likely to provide training on such policies than large law firms

·         The cost of legal research and client expectation/demand are the main drivers of cost recovery policies, regardless of law firm size. For more than half of the law firms, competitive advantage was cited as a significant factor as well.

·       Online legal research costs are recovered significantly more often than other kinds of research costs.

·      Most law firms have more than one person responsible for setting and managing their cost recovery policies. That group typically includes, a partner, practice group/ department chair and senior administrator. Librarian
·      Just under 60% of aw firms review their cost recovery policies annually. 
·    Document retrieval charges are the most frequently recovered costs. It is has a 68% recovery rate.  I assume that this is because these costs are relatively low  compared to online research and easy to document.
·    Large medium and small firms recover about the same level of online research (50%). Large firms are more likely to recover printing, scanning and photocopying than medium and small firms.

The Mattern Report
Mattern & Associates is a legal consulting firm that conducts an annual law firm cost recovery survey. It has a broader scope than the Bloomberg survey and covers traditional and emerging cost recovery areas. No one should be surprised that the survey reflects the continuing demand from clients for accountability, cost containment or cost reduction in all firm activities. This has impacted soft costs which includes online research. Here are some key trends:

· Increased pushback and refusal to pay for certain items by clients

· Downward pressure on rates and net realization

· Continued preference by clients to reimburse firms for hard costs

2 comments:

  1. I agree Jean! I expect the bulk of law firms have passed on the benefit of a discount based on their Westlaw and Lexis flat-rate contracts, which as she points out is perfectly acceptable per the ABA ethics opinion from years ago. Maybe there are a few rogue firms that still attempt to make their Westlaw and Lexis flat-rate contracts profit centers. However, no matter what the method the “cat is out of the bag” and law firm clients are pushing back and even requesting that online research costs will not be paid by them or should even appear on their bills. The days of double-billing (i.e. attorney time and the Westlaw or Lexis costs) are in my view numbered. Doing away with the biling of online research costs frees the attorney to do the necessary research to get to the answers that will help them wisely and in an informed way advise their client, which is what the client is paying them to do.

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  2. Two things:
    1. I believe clients have the misconception that somehow work product can be produced without certain level of research. It's like asking a student to write a paper without working with research materials (online or paper).

    2. If law firms were to do away with online research costs, then info centers (particularly the ones in large and medium-sized firms) would become a significant overhead eating into the firms' profit margins.

    Perhaps online research should be marketed to the clients as a differnt type of commodity rather than some nebulous line item on the invoice. Unfortunately we don't have too many viable low-cost services to choose from when it comes to legal research.

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