Published in Law Journal Newsletters
By Nathan Curtis, Consultant Mattern
Mattern has tracked law firm cost recovery strategies — and their success or failure — since 2004. One area of recovery that has seen tremendous growth over the years — and in which it was also apparent that firms were struggling to manage — involved e-discovery services. With big data and the resulting explosion of electronic documents, texts, images and voicemails that are subject to discovery, the cost burden was increasing at a pace that required firms to reconsider their recovery approach.
This is why in 2019, Mattern went to the market to conduct its first deep dive into e-discovery and litigation support cost recovery in the 2020 e-Discovery and Litigation Support Cost Recovery Survey (Survey). Some of the results were surprising.
Some of the unsurprising Survey results included the fact that over 80% of firms reported electronically stored information (ESI) involved in discovery was on the rise. Mattern also suspected the more advanced activities, especially those typically scrutinized by opposing counsel, would largely end up vended to third party providers. This certainly proved to be the case for forensics data collection, where virtually all firms reported shifting this activity to organizations that specialize in this field. Mattern supports the decision most firms have adopted in this area; this is one of our core recommendations in an effort to avoid spoliation and scrutiny risks.
Furthermore, we expected to see firms with in-house IT or Litigation Support talent capable of processing and hosting ESI utilizing on premises infrastructure to also rely on third party assistance to manage larger data collections and, oftentimes, hosting.
Lastly, we found that the majority of firms pass through costs to clients without mark up, with only around 14% of respondents adding a mark-up to their costs. Given clients’ general lack of understanding related to e-discovery, the ability to support flow-through costs is reported by many firms as a success factor in improving their net recovery rate.
The Survey did deliver some surprises, though — rates were highly variable, far more so than anticipated. Processing fees, as an example, resulted in a high per GB rate 13-fold more than the lowest reported and hosting fees followed a similar pattern. Firm success related to net rate of recovery — the proportion of costs deemed as billable, survive attorney write-off, and are actually paid by clients — also spanned the spectrum.
However, some trends emerged from this, and it’s a consistent theme we have noticed through the years with our traditional survey — hard costs trump soft costs from a recovery perspective. Simply put, the ability to reference a third-party invoice stands a better chance of surviving attorney write-off and clients are less likely to (or less successful in) rejecting these expenses.
Internal soft costs, those driven by investments in technology and talent, are much more prone to be disputed by attorneys and clients as these are regarded as overhead by some and “a cost of doing business.” The top 3 billing points clients most commonly refuse to pay include data hosting, data processing and hard copy imaging — most of which are currently performed in-house by firms.
The Survey results also highlighted some challenges. For instance, the cost of keeping pace with technology from the perspective of the time investment wading through the variety of available applications, the question of on-premises vs. hosted software, to determine which may be the best solution for a firm’s needs then testing, implementing, training and providing ongoing support. Of course, there’s also the financial investment in these applications, upgrades to hardware and the solutions themselves.
Another challenge cited by firms is the tug-of-war between attorney needs for quick turnaround on ESI processing and ingestion into a review platform against the reality that some collections far exceed in-house capabilities. The strategies deployed by firms to address these challenges varied, with Survey results showing that firms approach this in one of three models:
- A case-by-case basis and engaging a preferred, off-site vendor for larger collections. These firms, which account for 56% of respondents, maintain in-house IT or Litigation Support talent capable of processing small to mid-sized collections utilizing firm infrastructure and applications.
- Outsourcing on-site talent for moderately sized work and leveraging their off-site infrastructure for larger projects, thereby shifting the time and cost burden in keeping current with technology away from the firm. 13% of respondents rely on this model.
- Hybrid of these two models is employed by 31% of firms, where a core group of IT or Litigation Support professionals project manage and/or carry out some finishing touches in a project, such as importing the final product into their review application and quality checking. The balance of their on-site team is outsourced to manage the bulk of processing activities.
The three key drivers cited by firms that elected to outsource their Litigation Support departments include ease of expense recovery from clients (46%), ability to leverage expertise as opposed to developing in-house (31%), and data security risk mitigation (23%).
We also found billing models to vary, with some firms structuring client chargeback similar to third-party vendors by way of utilizing a per GB rate for data processing and hosting. Others include hourly fees to cover time spent by Litigation Support, IT, paralegal staff and some extend this to include project management efforts. Most firms also apply a threshold, typically set to 1 GB, before entertaining cost recovery.
Use of contract attorneys not too long ago was rare but we’re finding that nearly three quarters of firms now rely on this as a strategy. Firms cite the obvious benefit that contract attorneys deliver the ability to scale resources during discovery while avoiding ongoing labor expenses.
In terms of review application popularity, Casemap and Relativity are the clear leaders for on-prem solutions followed by Ipro Eclipse and then Concordance and Summation holding similar market shares. On the other hand, we found that Relativity outshadows the competition as a hosted application, tripling second place, Everlaw.
Overall, the value proposition firms are communicating to clients in justifying e-discovery cost recovery is the savings potential. Many clients don’t fully understand the power that review applications deliver and firms are reporting success with leveraging the justification that this technology allows attorneys to target and flag relevant documents while protecting privileged information significantly faster than traditional paper-based review.
In short, e-discovery applications deliver an offsetting effect between processing and hosting spend and attorney review hours. That’s positive news for clients, however firms have no viable option outside of deploying applications to cull, search and organize ESI given the sheer volume of data involved. Those who choose to absorb these costs are cutting into their income and big data’s march forward will quickly lead to this becoming an unsustainable model.
How much of an impact does it make? One firm we recently worked with was only charging for the billable hours of its litigation support staff. The net realization of these receivables no longer covered the cost of labor, software, and the infrastructure required to deliver service — a problem which was compounded by the exploding data storage requirements and client push-back on billable hours related to mundane tasks such as “staging data” and “processing.”
Mattern recommended a new model where the billable hour would cover the fully burdened cost of labor with the introduction of a new unit-based model for data storage to cover the infrastructure and software costs. To ensure simplicity in client billings, all software and infrastructure were bundled into an associated per GB per month recovery plan for data storage under active review within the firm’s repository database. The model was limited to one unit of recovery (data storage) and avoided the inclusion of processing, analytics, and software user fees to simplify the conversation.
In addition, speaking points were developed for the attorneys on why the client benefited from this type of model — a market-leading solution at a below-market rate. After one year, the model Mattern assisted the firm with increased their recovery of costs by 35%. That’s a big impact, and it’s only the start.
For more information on the results of Mattern’s survey, or how Mattern can assist with the redesign of your cost recovery model, please contact firstname.lastname@example.org.
See the article on Law Journal Newsletters: "Recovery Models for e-Discovery and Litigation Support Services that Make an Impact"