Strategic Librarian

Using strategy to develop the law firm library.

Cost Recovery of Online Legal Research: When is Overhead NOT Overhead

My last post focused on creating a policy on cost recovery of legal research (resources).  This one is a follow up to that post prompted by another article on the topic of clients paying for overhead, Are You Paying for Your Law Firm’s Overhead?   I found it refreshing that the author did not include online legal research in his list of overhead items.  At the same time, many clients are calling online legal research overhead as the online resources are replacing books that have traditionally been treated as overhead.  So, if cost recovery is important to your firm, when is overhead not overhead.

Don’t get me wrong.  I’m not arguing that the cost of all online legal research should be recovered.  If a firm decides to give all or some of it away, it’s their call.  My issue is with firms that don’t clarify how they plan to charge for resources, give some research away to some clients and not others, and make decisions on the fly as clients refuse to pay. 

That said, here’s my list of overhead vs non-overhead as pertains to online legal research:

Overhead:

Case law or other material found by citation – In this case (pun intended but probably not funny), the online service is a traditional overhead cost.  The problem firms run into in considering this overhead, is that there was a time when firms had both print and the online services for this purpose.  When they used the books and other print resources, they may have charged clients for copy costs.  When they used the online, they charged clients. 

The reality of online vs print was that very few lawyers were using the print but instead, were using online resources to get the cases.  Now, firms have removed the books, freeing up space and saving money, while using the online services as before.   At the same time, they want to continue recovering the cost of providing the case law.  I have to agree with clients on this one.  If a firm has moved to online only for this purpose, it should be treated as overhead.

Online delivery of newsletters and other news items – At one point, law firms purchased newsletters, newspapers, journals and other periodicals to keep up with changes in their practice and news about their clients, prospective clients and competitors.  These items weren’t really used efficiently as they were often routed from one person to another with routing lists longer than they should be.  There was one newsletter that I signed up for that I never saw in the first four years of my last employment at a firm.  I gave up and took my name off the list.

Now, firms get much of this news and updates electronically making them more expensive as the vendor’s licenses require that each recipient of the news, etc. be charged for the service.  License models may vary but the bottom line is that the firm is paying more.  At the same time, they are benefiting more from this type of service.   No client should be charged for this no matter how expensive the service is.

Marketing, preparation for CLEs, etc. – Firms have always treated this type of use of online resources as overhead.  That hasn’t and shouldn’t change.

Non-Overhead (Recoverable Costs)

Substantive research related to a client’s matter – When online services like Lexis and Westlaw were introduced many years ago, they were intended to make legal research easier and less time-consuming.   No more spending days on end in the library researching an issue.  While some of you might argue the point now, clients, at that time, agreed to pay for the online services as they represented cost savings.  

Unlike the use of print, the use of online services for substantive research hasn’t changed except to become more sophisticated – providing better searching utilities, better results and more resources than any print could provide, etc.  Yet clients no longer see this as a cost for which they should reimburse their firms – even if it is related to their matter.  Now, I have to agree with the law firms.  If it relates to a matter and requires the use of online resources, firms should be able to disburse the costs to their clients.

Other Online Resources Besides Westlaw and Lexis

Clients may pay for these services depending on what they are.  Firms may not want to charge for these same services as they:

  • Think that other firms aren’t charging for the services and they would be alone in convincing clients it makes sense
  • Are nervous about introducing one more disbursement to their invoices
  • Haven’t worked out how to disburse the costs in an ethical manner

Should they be asking clients to reimburse them for these costs?  Yes and no.  I go back to comparing what was done in the past and what may be done now but I am also taking into consideration that these online services are much like Westlaw and Lexis (case law, regulatory materials, etc.) or they have replaced updated treatises and looseleafs with a service that offers sophisticated searching (reducing research time and effort) and more content than could ever be provided in print format.  Researching using:

  • Fastcase, Loislaw, and their competitors is overhead if a researcher is simply finding cases by citation and not overhead if the researcher is doing substantive research related to a matter
  • BNA libraries, WK’s Intelliconnect and their competitors is overhead if researchers are referencing a cite and not overhead if researchers are conducting a substantive search
  • Dialog, D&B, and other services that get used by firms in support of a client’s matter should be treated as recoverable costs while use of these services for marketing and other firm uses is overhead

Are you seeing a trend here?  Commodity use vs. substantive use makes the most sense to me in arbitrating what gets disbursed to clients and what is treated as overhead by the firm.

I’m not saying firm’s definitely should recover all the costs they can.  If a firm decides they can afford to treat the use of all online resources as overhead (or they see it differently than I do), by all means, provide this benefit to your clients.  If your firm decides to go this route understand that it is a competitive advantage and try to make sure your clients understand that they are receiving a benefit that not all firms will provide.

If your firm decides to charge clients for research, consider adopting a policy that describes what the firm is doing in terms that clients understand and can agree with.  If you are providing superior services and training your research in how to be cost-effective in their research, can a client really argue that research directly related to their matter should be treated as overhead?

An important aside:  If you are looking at research as substantive vs commodity, shouldn’t your contract with your vendors reflect the same in terms of what they charge?  Are you getting commodity pricing from them?

I would love your ideas on this topic!

Next time:  Cost Recovery: Ethical treatment of resources that aren’t charged per use

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