A new Legal Technology News article, Cost Recovery Breeds Client Frustration in New Survey, written by Robert Mattern, reports that legal research is one of the leading irritants for law firm clients. He further reports that the number of firms that do not charge clients for this service is 27% – a significant drop from the 3% the Mattern survey reported last year. While this number seems significant, it should be noted that the 2010 ABA Technology Survey confirms this % for all sizes of firms but reports 9.8% for firms with 100+ lawyers, 19.2% for 50-99 lawyers, 18.8% for 10-49 lawyers, 32% for 2-9 lawyers, and 47.7% for solo firms.
Mattern goes on to provide some suggestions regarding how firms might maintain their billable cost recovery revenue. His recommendation for legal research? He writes, “For legal research, develop a fair pricing policy that reflects the firm’s actual cost for these services.” I have to say I agree with him but would like to take this idea a bit further.
My presentation, Cost Recovery: Creating a Policy & Plan, has a recommendation along the same lines. I’ve embedded it below but want to run through some of the ideas for you.
Steps for better cost recovery:
- Develop a policy that outlines the what, when and how of cost recovery
- Develop a cost recovery plan and procedures that detail how the policy will be implemented
- Create and implement a cost recovery communication plan
Seems simple but the execution is made complex when you add people. So, what makes up each step?
Develop a policy that outlines the what, when and how of cost recovery
Lawyers work with clients every day to develop policies but generally (while they may not admit it) when it comes to creating policies for their business, they often have difficulty. If they have written policies, they can be written in a form that readers only get a nuance of the policy. For example: The Firm recovers external costs for telephone, copying, legal research, etc. That doesn’t do enough to provide information to billing partners or researchers to give them an understanding of what the firm does with online research disbursements.
I suggest that legal research have its own policy with just a bit more information. It makes sense when you consider the large sums spent on online legal research services. What would I include besides the fact that the firm intends to recover the costs? The following could be included:
- What resources are selected as those the firm will attempt to recover
- What resources are provided to clients at no cost
- How discounts are applied
- What training researchers are required to participate in to keep up their cost-effective research skills
- That researchers will be required to respond to requests to provide correct client/matter numbers if asked
- How will write-offs be handled
Note: While researching this topic and working with firms, I’ve found that most firms use a hybrid method for recovering online research costs. For example, what could be considered as a commodity (and what most resembles the use of books), finding and printing case-law and articles are comped while the cost for substantive research done using the online resources technology and applying directly to the matter is treated as recoverable.
Develop a cost recovery plan and procedures that detail how the policy will be implemented
Policies are bound to fail if there is no plan for implementation. Beyond the simple need for a roadmap, cost recovery plans can be used to inform billing partners and researchers about the process. What could you include in a plan?
- Goals for recovery
- Participants and the roles they play
- Hi-level description of the process
- Plan for tracking your success including process and timing
- Purpose – Why
- Picture – What
- Plan – How
- Part – Who
- Announcement of policy by management committee
- Explanation of plan by library director / accounting director / executive director
- Use various formats to introduce plan
- Email, meetings, individual visits, small groups, orientation
- Link plan to policy (handouts, intranet links, etc)
- Billing partner has responsibility to inform clients
- Library/Accounting can assist by providing materials
- Talking points
- Engagement letters
- Consider adding copy of policy as attachment to engagement letter
- Let them know that you expect their goal would be to provide training that leads to cost-effective research not up sell content not in your contract or software and services you don’t use
- Provide copy of policy
- Tell them you expect them to act as partner in cost recovery
- Work with them to help form their communication to researchers (too many vendors like to say that their resource is free because of a flat rate contract or special offers – stop that message in its track)
Cost recovery is not easy but many firms make it more difficult for themselves because they haven’t addressed the issue in a manner that could, more likely, lead to success. What I”m suggesting may sound time-consuming, create some conflict in the process or be difficult at best. Still, the value it brings in terms of return on investment can be immense.