Strategic Librarian

Using strategy to develop the law firm library.

Cost Recovery : Putting a Value on Online Research

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To recover costs or not to recover costs – that is often the question asked when it comes to online research these days.   While costs for online research keep rising, we are seeing clients refuse to pay, lawyers who don’t want to charge clients, and firms a bit skittish about taking on costs that are in the millions for some.  Even so, some partners tell their associates to charge the online research to marketing or some other administrative general ledger number.  Worse yet, they may tell them not to use the online resources to do the research. 

It is true, generally speaking, that clients do not want to pay for online research.  Some clients submit RFPs that outline what they will and will not pay for online research.  They do this for many reasons including the belief that online research is no different from researching using print which is generally treated as overhead and fear that they will be overcharged.  Firms respond that they will honor that request and then do something internally to make sure the client is not charged. 

On the other hand law firms haven’t done a good job of developing policies around online research or communicating the value of that research to their clients.  Perhaps the cost of the services seems insignificant in comparison to other expenses.  Perhaps they just don’t have time to think about it.  Perhaps they just wish the whole thing would go away or get fixed on its own.

The bottom line is that there is a problem that needs to be addressed and few are doing anything about it.  So what problems does this emperor with no clothes create? 

  • Uneven distribution of costs.  Depending on how firms disburse online research costs, some clients could end up paying for those unwilling to pay. 
  • Lesser quality research results.  Fearful of being reprimanded for using online resources, associates do not do as thorough a job while researching.
  • Inaccurate metrics around what a matter costs the firm.  If associates (and partners) use non-billable numbers to mask the research costs, the firm does not get an accurate picture of costs and therefore doesn’t know how profitable a matter may be.
  • Surprises when services are invoiced.  Client A is surprised when they receive an invoice from Firm B, for services that a partner verbally agreed would not appear on the invoice.
  • Mixed messages.  Associates who thought they were operating correctly get reprimanded for doing something they thought was right.
  • Unrealistic cost recovery budgets.   Budgeting for recovery can be a futile exercise for a library director to create as there is no way to predict the growing number of discounts, write-offs, and new clients who are not expected to pay for any of the online costs. 

There really has to be a better way to manage these costs.  I don’t have any brilliant solutions to the problems I’ve outlined but I do think there are some things that law firms and their clients can do to reduce the frustration around this issue.

  • Decide to charge for online research or treat those services as overhead costs.  Whichever you decide, be consistent.  As you make this decision, consider what the value is in offering online research to your client.  Do they realize the value?  They are receiving faster results with less attorney time spent in research.  Have you done a good job of explaining the value to your clients?
  • Ask your clients for their input.  Communication will go a long way toward creating an understanding in regards to how you plan to operate.
  • Develop a cost recovery policy for online research.  This policy should outline what its disbursed and what is treated as overhead.  It also needs to outline how discounts will be given to clients who provide the firm with a large volume of work.  Your cost recovery policy should be your firm’s roadmap for how they do business in relation to online research.
  • Be clear in how you disburse costs.  The message regarding how you charge clients for these services should outline how the costs are included in overhead or how they will be charged out separately.
    • If you are treating resources as overhead, provide your clients with reports that will demonstrate the benefit they are receiving.  Communicate, communicate, communicate.
    • If you are charging clients separately for online services, make the disbursements as transparent as possible.  They should know what you paid for the service and what they are being charged.   Don’t leave room for questions.
  • Do regular reviews of your policy in relation to the market and client expectations.

Much of the backlash against online resource costs, exists because firms have not led the discussions that are needed to make clients understand the value of the service or to make cost recovery more transparent.  Communication around this issue should be treated the same as communication around any other firm/client issue.  That is, of course, if you think the per firm $3,000,000 average spend on online services that was reported in the Law Firm Inc AmLaw 200 Library Survey is real money.

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