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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Legal Research One of Leading Irritants says New Survey on Cost Recovery

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
followed up with a detailed procedure for how disbursements get processed.
 
Create and implement a cost recovery communication plan
 
Although this part of the process gets all but ignored, communicating the cost recovery policy and plan is the most important component for success.  Transparency in cost recovery is needed for clients to feel comfortable with how the firm is handling the disbursements.  To do this, firms may have to go beyond the simple description now included in most engagement letters.  To provide this to clients you might want to consider the 4 P’s of communication in your messaging:
  • Purpose – Why
  • Picture – What
  • Plan – How
  • Part – Who
Once an overall message is established, there are multiple audiences and vehicles for the communication:
 
Internal:
  • 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)
External:

Existing Clients

  • Billing partner has responsibility to inform clients
  • Library/Accounting can assist by providing materials
    • Policy
    • Talking points

New Clients

  • Engagement letters
  • Consider adding copy of policy as attachment to engagement letter
Vendors
  • 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.


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Cutting Costs of Online Research Services

It has been 11 years since I cancelled my first set of reporters.  What followed was the cancellation of all print reporters in that firm.  Like many of you reading this post also experienced, it wasn’t easy.  That said, we can now say that most of the lawyers within  firms (who cancelled reporters) have made the transition from print to electronic/online case law.

What’s next?  Many firms are making decisions to go with a preferred provider – Westlaw or Lexis – to cut costs.  The CIOs, CMOs, and CKOs who now oversee the library or research department see this as a way to reduce paying for duplication.  Depending on what content your firm uses, this may or may not be the best way to proceed.  Even so, while this may be necessary there may be strategies you can use  to manage costs of online services.

Note: I realize that many firms have already taken some of these steps or have it planned for the future.  I also understand that all of these suggestions may be or not be right for your firm depending on needs and culture.

  • If you have a flat rate contract or a special offer that includes case law, cancel your print reporters.
  • If your flat rate contract or special offer includes access to the online digests, start training your users on the use of these tools.  Eventually, you will be able to cancel the digests.
  • If your firm is serious about recovering costs for online resources and you haven’t already implemented an ERM tool for client/matter validation, do so now.  It will pay for itself and then some.
  • If your flat rate contract(s)  exclude resources and/or you have access to other resources with the same content, use ERM tools to redirect your users to the right resource.   It is a lot easier than training users to select the right resource.
  • If you haven’t already done so, cancel the print versions of the newsletters or journals you now get in electronic format.
  • If you have WK Intelliconnect, BNA libraries and electronic newsletters, or RIA CheckPoint, or other similar services cancel the print newsletters and looseleafs that provide the same content as those services and use ERM tools to block access to the databases with the same content on Westlaw and Lexis.  Alternatively, you can use those same tools to redirect your users to the right resource.
  • If your firm attempts to recover costs for Westlaw and if you have Westlaw eLibraries that include caselaw where you don’t charge clients for the use, remove all case law from the eLibraries.  If you don’t, you will very likely see eLibraries cannibalize the cost recovery of your Westlaw contract.  I’ve done analysis of eLibrary use where the trend line in my spreadsheet showed the use of eLibraries went up at the same rate that the use of Westlaw went down, eventually meeting at a point that the lines crossed.
  • If you’ve worked with Lexis to set up custom user interfaces (CUI), it is very likely that the use of the interfaces are charged separately from your main contract.  The issue that I’ve seen arise is that the use of these CUIs is generally low.  This can be changed with the proper training and by redirecting the use of the resources using your ERM tool.  Just make sure they get used or cancel them.
  • If your firm charges clients for online services and you are considering adding expert witness or briefs and pleadings to your contract, don’t.  The use of these types of resources are so closely tied to litigation matters  that clients are generally willing to pay for their use.  They don’t represent the library resources that clients expect to be treated as overhead.
  • If your firm doesn’t require refresher training for online resources, recommend that they do so and that it become an ongoing program.  A lot of the client push back of cost recovery is based on the high costs.  Researchers that participate in cost-effective research training will research online more effectively, reducing those costs.
  • If you don’t have a research portal that provides personalized access to resources, implement one.  It will reduce the time researchers spend looking for the right resource and reduce costs for the firm’s clients.

These are just a few ideas based on experience.  I would love to hear other ideas for cost cutting, cancellations of duplicates, etc.  I would also like to hear from you if you don’t agree with me.


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Cost Recovery Presentations

I’ve done a number of presentations/webinars on cost recovery and business case webinars over the last couple years.  While I will be offering the webinars again, you might be interested in the PowerPoint slides from those I’ve done in the past.  If you are interested in getting access to the recordings of these presentations, contact me using the Contact Us page on this site.


The Pirate Lawyers Recover Costs – Cost Recovery on the High Seas

The Pirate Lawyers Recover CostsA while back Greg Lambert at 3 Geeks and the Law posted a look at the legal industry through children’s eyes in the form of an online book on storyjumper.com.  In doing this, he made me think about how the same exercise could be applied to cost recovery of online resources.

My theory on why law firms are having problems recovering the costs of online research is that it is an issue that comes out of poor planning and communication followed by no one wanting to deal with the issues that arise.

Don’t get me wrong.  I’m not saying that law firms should recover costs.  I’m saying that firms that have made the decision to do so, need to be proactive in how they handle cost recovery to make it more palatable to clients.

The result of all this thinking is a book created with storyjumper.com and titled “The Pirate Lawyers Recover Costs”  that tells the tale of pirate lawyers and their swashbuckling ways.  As I couldn’t let myself play during the work day without some form of compensation, it does offer my consulting services on the last page.

I am giving away copies of the book to the first five firms that contact me to learn more about NPCI’s cost recovery planning services.  My email address is nplatt@ninaplatt.com.  All proceeds from the purchase of the book go to storyjumper.com


Response to Quote in ABA Article

Although I wear the LookUp Precision product manager hat in addition to the consulting I do for firms and other vendors, I have no intention of using this blog as a means to pitch LookUp Precision (except for ads you may see on the page once in a while).  That said, I have do have to make a comment about a quote in a  recent article in the ABA Journal Law News Now, Your Law Librarian Is Watching: ‘Hot Stuff’ Tracking Software Can Cut Costs, as I expect that many of you will read the article and not the comments I made below it.

The article originally stated that a ballpark price for LookUp Precision is $100,000.  After talking to the author, the article has been corrected to say:

A ballpark cost to track 1,000 different databases, according to one librarian who is considering LookUp Precision, is about $100,000 a year. (Nina Platt, product manager for LookUp Precision, says the $100,000 figure is inflated and “grossly incorrect,” but did not agree to publicize more specific prices in an interview with the ABA Journal.)

My comments left with the article are as follows:

  1. Comment made before article was changed:  I am the product manager for LookUp Precision.  The ballpark price you listed for LookUp is grossly incorrect.  That number is many times the price currently being paid by our clients.  Please make a correction.  I can only guess that the number came from one of our competitors who has been known to make incorrect statements about LookUp Precision’s cost and functionality.
  2. Comment made after the article was changed: LookUp Precision is not priced by number of databases tracked.  Rather it is tracked by number of unique users within a month.  If a user accesses one database during that month, he is tracked once.  If he accesses another database or returns to the same one he has used, he is not tracked again.  We are willing to share the pricing information for any interested firm but not in a public forum.

Being new to this vendor thing , I have been very surprised at how some vendors act.  I may be naive but I would not stoop to make incorrect statements about a competitor.  As I said in my comment above, I can only guess that a competitor provided the costs mentioned as the numbers would have never come from the LookUp Precision team.  I value direct honest communication and only know how to operate in that way.  What I’ve learned in the last few months is that one of our competitors does not hold the same values.   Very frustrating.

I’m stepping off my soap box now and calming down as best I can.  Thanks for listening.


The Value of Legal and Other Online Resources

Every now and then someone writes an article saying that information is free and decrying the practice of law firms to charge for online research services.  I see these as poorly formulated attempts to move the access to information to a free model.  Peter Schwarz’s recent article, The Reinvention of Legal Research: The Future is Now, Huffington Post, August 13, 2009, stating information is a commodity is no different.

Don’t get me wrong.  I do think that some information should be treated as a commodity.  Information that is freely available and has been produced by government entities should be treated differently.  On the other hand, information that has been produced by individuals or companies, with an expectation of profit, should be able to realize that profit.  The creators of technology and editorial analysis that  helps researchers quickly answer a question or obtain information have that same right to charge for the use of the tools they created.

The paragraph talking about the fluidity of information is particularly puzzling:

Information is liquid. We now live in an ocean of information, and are swept along by its riptides and currents. The challenge is to manage our relationship to this information so it serves us our higher purposes. We need ways to filter real-time story-telling and reporting so we can identify narratives that have substance and reject those that are ephemeral, partial, distorted, or trivial.

I can only conclude from this paragraph that managing and filtering of information is more necessary today than in the past.  The commercial companies that create the means to find, filter and manage information do so for profit.  Even those that appear free (e.g., Google) have some type of business model that makes a profit.  Yes, some non-profit companies exist, but, for the most part, the companies that have delivered this technology are for profit.

Given that, let’s examine (again – in other words, get ready for a re-rant) what the value these companies provide is and why it can be disbursed to clients – for a more complete description of the each of the following points, see  Justice Hunt, We Need To Talk About Your Views on Cost Recovery of Online Legal Research.

Online legal and other online resources provide the following:

  • Creates multiple access points – You are no longer restricted to the table of contents, index, or even the print indexes that used to sit on library shelves.  Those print indexes only gave access by title, author, and subject.  Keep in mind that the subjects were assigned by individuals who made judgement calls.
  • Reduces the amount of time a lawyer needs to spend doing research – Yes, the client may still need to pay for lawyer time in addition to the legal resource but think of how that time has been reduced by the use of computers.
  • Produces more complete research results – Storage on computers allows for the addition of more information where a book is limited to what the author writes or the editor decides is the right number of pages to make the book sell.  More information, more complete results.
  • Contains overall legal research costs – while some of the research done for a matter is still done using books (there is information that you can’t get on a computer at this time or the lawyer doing the work believes books are better), the reality is that the cost of the research is less than if all of it was to be done manually.
  • Provides information to support the matter that would not be available on a  firm’s library shelves.  Many non-legal resources that get used for matters are specialized and complex.  The vast information available to us today is endless and growing exponentially.  In the hands of expert researchers (i.e., librarians), that non-legal information used to support a matter is available today where in the past we would not have had access.  The information found can make or break a matter.  Information and the time of the librarians doing the research is valuable and is also open to disbursement to clients.

If I were a client, I would wonder about the lawyer and law firms that did not use online resources.  In fact, as a client of a local law firm here in Minnesota, I have been thankful when I see charges for research.  I’m also thankful that they have a librarian and that the research done is cost-effective.  Instead of talking about information as liquid and suggesting that all information should be free, we should be thinking about how to improve research skills and how to prove to clients that law firms are doing the best research on behalf of their clients.

FOR THE RECORD:  I am not against freeing government generated data and treating it like a commodity.  I respect books and believe that some books have a place in research.  The physical library treated as overhead is not yet a thing of the past nor should it be.  At the same time, I believe the power of today’s libraries is on our computer desktops.  I am not a schill for the online publishers and aggregators.