The quarterly publication of the International Legal Technology Association
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We also think there will be a shift in the legal research pricing model based upon the client entering into these contracts directly with the vendors. The trend will be that the clients will be the holders of the contracts and the law firms will be given access to them, with all invoicing going directly to the clients, without the firms being billed at all. The percentage of firms that abandon cost recovery altogether will increase significantly. With the upcoming obsolescence of many cost recovery systems procured in the early 2000s and the fact that almost half of firms have not implemented a strategy to capture and charge prints and scans, we predict that many firms will abandon soft cost recovery altogether. Why? Because the volumes that remain in place (namely copies) do not cost-justify any further investment in this area. Cost Recovery 2020: A Look Ahead We believe that the soft cost recovery model in effect today will be a dinosaur by 2020 (a T-Rec rather than a T-Rex), with firms either abandoning cost recovery altogether or migrating to a hard cost recovery model. As with any change, there are opportunities and we believe the hard cost pass-through model is one of them. If structured properly, this will result in a more client-friendly, higher-realization model that will actually benefit both parties. Clients benefit by being able to trust the validity of these charges, and firms benefit by incurring a higher realization. Just as the implementation of fixed fee arrangements and alternative fee agreements are trending upward, so too will this hard cost recovery model. The key to success in this shift, just as with the alternative billing models, is to understand it and embrace the model that works. Your firm, your recoveries and the relationship with your clients will be better off for it. ILTA New cost recovery models will emerge. Based upon the success of law firms recovering hard costs, my position is to take advantage of the internal and external comfort with hard costs and transform as many of a firm’s soft costs into hard costs. Why do this? As our 2010 Cost Recovery study shows, a hard cost has a higher realization (actual reimbursement) rate than its corresponding internally generated soft cost. The increase in realization is simply due to the fact that, in the case of hard costs incurred from a third-party vendor, internal write-offs are greatly diminished, as are external (client) write-offs. In other words, the billing attorneys are less likely to eliminate a charge (without argument) when it is backed up by an invoice, and a client is more likely to pay for a charge when there is an invoice from a third-party vendor. This is a dramatic paradigm shift for firms in regard to keeping copy and litigation work onsite. In the old days with the higher rates and fewer write-offs, it made financial sense to keep these functions in-house. However, with the current pressure on rates and realizations, it makes sense for most firms to send the work to a third-party vendor to generate a hard invoice charge. The key to this system is to have a network of offsite vendors that can be trusted to be reliable partners, though this is sometimes easier said than done. In addition, you can extend this model to the firm’s onsite support services and litigation operations. The entire onsite support services operation can be converted to a direct/hard cost pass-through. This takes the firm out of the cost recovery business, lowers the rates charged to the client, and increases the net realization for the firm. 94 www.iltanet.org Peer to Peer Rob Mattern is the President of Mattern & Associates, LLC, a firm of unbiased consultants who work with law firms to improve their support services and the realization of their soft cost recoveries. Rob launched the company in 1997 after nine years of working in the support services outsourcing industry. He can be reached at rmattern@matternassoc.com. For more information about the 2010 Cost Recovery Overview and to order a copy visit www.matternassoc.com.