Cost Recovery and Profit Making in Private Law

Librariesby

LaJean HumphriesLibrary Manager

Schwabe, Williamson & Wyatt

Canadian Association of Law Libraries

May 27, 2008

Agenda Trends Policies Communication w/ firm management Ethical issues – “pitching cost recovery” What you can do Implementing successful cost recovery ERM products

Trends

Pre 93-379 library as profit center Cost recovery struggle No clear policies ABA Legal Technology Survey

Report – Online Research volume

ALM Survey http://lawfirminc.law.com/

What percentage of online charges paid to Westlaw and LexisNexis does the firm recover from clients?

2003 2004 2005 2006

40% or less 10% 3% 13% 14%

41-60% 18% 14% 11% 10%

61-80% 50% 42% 37% 38%

81-100% 29% 33% 37% 30%

Not applicable 1% 9%

We don't recover online charges 1% 7%

Source: Amercian Lawyer, Law Firm, Inc., 2004-2007

2002 2004-2005 2007

Cost inc/ in hourly rate 23% 20.1% 13.3%

Bill clients at cost 42.8% 45.5% 42.3%

Bill clients at cost + premium 5.9% 3.8% 3.8%

Bill clients at discounted cost 5.2% 4.5% 4.1%

Don't bill clients for online research 17.1% 21.3% 23.1%

Don't know 9.6% 10.2% 16%

Other 2% 1% 3.3%

Source: ABA Legal Technology Survey Report Online Research, 2002, 2004-2005, 2007

Cost recovery by size of firm

Number of lawyers at all locations Solo 3-9 10-49 50-99

100+

Bill clients at cost 21.9% 44.3% 53.5% 60% 45.1%

Bill clients at cost + premium 2.7% 2.8% 5.6% 5.6%

Bill clients at discounted price 2.7% 2.8% 5.6% 7.0%

Don’t bill clients for online research 43.8% 26.4% 15.5% 20% 5.6%

Source: 2007 Legal Technology Survey Report – Online Research, ABA.

Firm policies – most common

No markups Discounts passed through to

clients Nondiscounted databases used

only for billable work

Firm policies – frequently

Do not recoup costs where: Online replaces paper Online replaces duplicate copies Caselaw retrieval Citation verification – Shepard’s Dictionaries Some treatise collections

Firm policies – increasingly

Policy reflected in engagement letters

Transparent pricing

Communicate with management

Make friends with Accounting Expense reports Actual recovery

Make friends with Excel Make friends with group leaders Law Firm Accounting 101 (Randall J.

Thompson) http://www.aallnet.org/sis/pllsis/newslett/Spring08.asp

Online Research

No client number

89%

Billable 11%

Total Value v. Actual Cost

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1 2 3 4 5 6

Total ValueCost

Ethical issues

Value of online research Shareholder decision Attorneys must communicate

clearly with clients

Value of online research

In re Cendant Corp.:

“Computer-assisted research is also essential to modern complex litigation.”

But, it costs so much

“We have a healthy respect for the quality of their work, but the only thing worse than passing along the sometimes high cost of CALR is the thought of absorbing the cost ourselves.” (Chicago Daily Law Bulletin, August 31, 1994)

What you can do

Law firm’s history of online research billing

Review ABA Formal Op. 93-379 Present current status of billing

procedure / policy Look at the bills

What you can do (cont.)

Cost recovery CLE Present scenarios

Collect results Present findings to management

Implementing successful cost recovery

Attorney support / buy-in Realistic expectations Client validation

Billing Get it on the bill soon “Computer assisted legal research, such as

Lexis and Westlaw, is used for the direct benefit of our clients, saving a significant amount of time required by an attorney performing the same function manually. We pass on to you only our cost of this service, as reflected above, as a substantial reduction in the overall cost of delivering our legal services.” ”Recover 100% of Online Research Costs” July 20, 2005 (AALL program, Mark Estes)

ERM Products – what they can do

Client-matter validation Site tracking ID/password management Auto-population of ID/passwords Reports

ERM products – what’s available

Cost Recovery Manager (Lexis)http://www.lexisnexis.com/infopro/training/

reference/PracticeMgt/CostRecoveryManager.pdf

Lookup Precision (Advanced Productivity Software)

http://www.aps-soft.com/Products/LookUp/default.asp

ERM products – what’s available OneLog (Info Technology Supply - UK)http://www.itsltduk.co.uk/onelog.asp

Research Monitor (Priory Solutions – UK)http://www.priorysolutions.co.uk/researchmonitor.htm

Areus (Iconitel – US)http://iconitel.com/

Lexis Cost Recovery Manager

Other tools

PowerInvoice (LexisNexis) Quickview (Westlaw) Client code, reference number

available Accurint CourtLink Dialog GSI/LiveEdgar Pacer

Thank you!

Questions? Feel free to contact me.

LaJean Humphries, Library Manager Schwabe, Williamson & Wyatt lhumphries@schwabe.com 503-796-2071