Want Clients to Pay for Expenses? Try Asking Them

Posted on: The American Lawyer
By: Lizzy McLellan

The American Lawyer discusses the 2018 Cost Recovery Survey results.

Law firms have been leaving money on the table for years by failing to collect on back-office expenses—as much as millions of dollars for the largest firms. And while client pushback on law firm administrative expenses remains strong, it may be reaching a plateau, a new survey suggests.

Legal support services consulting firm Mattern & Associates, based in Chadds Ford, Pennsylvania, released its biannual cost recovery survey Tuesday.

The survey showed a net realization rate of 37 percent for such back-office expenses as copying and printing, litigation support and legal research, showing a slight increase from the 2016 survey.

“We’ve definitely seen that the decline in net realizations is really starting to level off,” said Stephen Cole, Mattern’s director of client technology and strategy. “Pushback is still prevalent, but it seems to be managed.”

Cost recovery was flat in many categories and increased with regard to printing and legal research, Mattern found. Realization for printing costs went up 30 percent and legal research realization increased 48 percent, according to the survey.

Cole said the survey determines net realization by factoring in whether a soft cost incurred is determined to be billable, whether it is actually billed and, finally, whether the client then pays for it. From 2016 to 2018, the stage where firms saw an increase was in actually billing for costs that were deemed billable.

If a cost actually makes it onto an invoice, Cole said, chances are high that the client will pay for it.

“These are significant dollars for firms. When we get to the bigger firms, these are millions of dollars falling to the bottom line,” Cole said.

Still, the report said, legal research is a major area where clients push back against costs, along with photocopying, telephone and word processing costs.

And, in a sign of the times, the survey found that firms are becoming more aggressive about recovering costs for electronic data storage. Fifty-six percent of respondents recovered these costs from clients in the 2018 survey, while only 36 percent did in the 2016 survey.

At the same time, Mattern’s survey found that law firms are looking at other ways to cover these expenses. About a quarter of respondents have implemented alternative cost recovery models, the report said.

Of those who have sought alternative methods, one-third have simply stopped charging for cost recovery, and 20 percent have adjusted their rates to include cost recovery, while 40 percent have combined those two strategies.

Mattern has been conducting the cost recovery survey every other year since 2004. This year’s survey was sent to 212 firms, and 34 firms of various sizes and geographic footprints participated.

See the article on The American Lawyer: “Want Clients to Pay for Expense? Try Asking Them.”