What is the “fair” cost of scanning for a firm to bill to a client?
This was a question recently debated online and there were various responses, but which emanated from this citation and these questions:
Per ABA Opinion 93-379, “A lawyer may not charge a client for overhead expenses…. [but] may recoup expenses …, so long as the charge reasonably reflects the lawyer’s actual cost for the services rendered.” What is the actual cost of scanning? If billing rates factor in the “overhead” cost of support staff (i.e. – labor), then what’s left? With scanning, there is no paper cost. Scanning actually reduces a firm’s overhead by reducing needed storage space. While large scale scanning of documents is a separate issue, should firms charge for “routine scanning” that replaces a traditional, paper filing system?
In reviewing all of the ensuing 8 comments 5 (62.5%) came out against charging for soft costs and 3 (37.5%) came out for it albeit in a different method – which is a very similar breakdown to the percentage of firms charging for scans today.
I think there are really two arguments going on: 1. Should firms charge for soft costs and 2. What is a fair cost of scanning? I also think you have to consider the contributor’s perspective - is that perspective business development or firm profitability?
Let me address the 2nd point first. Looked at strictly from a business development angle - I would say don’t charge. It is always easier to give in on a charge than defend it. I don’t necessarily agree with this strategy but can understand it.
On the firm profitability front - why wouldn’t you charge for it? There is a cost to it, it is a function of the matter (you wouldn’t do it if it wasn’t for that matter) and the process (scanning) replaces technology that you charged for in the past (facsimile and overnight shipping) at a fraction of their cost.
It all comes back to the fact that clients will pay for reasonable, defensible, justifiable expenses generated by their cases. If you look at the market, example after example illustrates this fact—and this includes scanning. This additional revenue may even save a job or two.
It is not just about recovering more, it is about getting paid for what you recover
One overlooked area of opportunity in many firms is the recovery of client reimbursable costs. Study after study show that clients will pay and attorneys will not write-off defensible, verifiable recoverable costs. Does this surprise you?
If you are negotiating your support services contract and not factoring in the cost recovery impact based upon what your firm is recovering, you are leaving the majority of the financial impact on the table. This is not acceptable in today’s market.
In conducting the Mattern & Associates Cost Recovery Survey every two years for the last decade and conducting over 100 analyses of what firms are recovering, writing off and giving up on, I can say with authority that the recovery of costs is not dead and rumor of its demise is greatly exaggerated.
For every anecdote of a client pushing back, there is an example of a firm strategically increasing their billable recoveries. An excellent example of a firm recently repositioning their cost recovery is Armstrong Teasdale of St. Louis one of Missouri’s largest law firms with 250 lawyers. Upon an analysis all of the firm’s support services operations and cost recovery strategies against industry benchmarks, we developed a specific approach necessary for Armstrong’s needs in each area, including initiating cost recovery for print, something the firm had not previously done. Read more here.
If your firm wants to strengthen its cost recovery strategies, you can start by asking these questions:
- Is cost recovery obsolete?
- How has cost recovery changed over the last decade?
- What have the trends shown for soft vs. hard cost recoveries?
- What are successful strategies now and moving forward?
- What alternative methodologies have been implemented?
- How does cost recovery impact your back office operation?
Another step you can take is to join our webinar on Wednesday, February 19th at 12pm EST: “Structuring your firm’s cost recovery strategy and back office operation to maximize your billable recoveries” where we will address these questions and more.
Please email Lisa Schneider at email@example.com and she will provide you with the link.
It’s time for LegalTech New York 2014 - Cost recovery is no longer cost recovery
One of the more interesting areas to brush up on when you visit LegalTech in New York next week are the advances in cost recovery and workflow software. In almost all of our outsourcing and equipment analyses, the blending of the two areas into one unified product are resulting in improved workflow and significant hard dollar savings.
The key questions to ask yourself prior to exploring the workflow/cost recovery vendors at the show include:
- What do I need and want my workflow software to do? Do I want to scan directly to email, scan to my document management software, etc.?
- What do I want to recover on the cost recovery front? Scans, prints, copies? Click here to read about an AmLaw 250 firm that recently initiated cost recovery for prints. Areas that are on the bubble are facsimile, miscellaneous entries such as postage, etc.
We are pleased that this will be launching the Mattern & Associates Cost Recovery and Workflow Survey in March of this year. For a decade, now, we have been delivering what is widely recognized as the industry’s most comprehensive snapshot of cost recovery practices.
If you are in the shopping mode for a cost recovery system for your firm at LegalTech, you may want to consider participating in our 2014 Mattern & Associates Cost Recovery and Workflow Survey. This comprehensive survey will tell you what systems are being used, will compare those practices to those of your peers as well as provide you with hard data on what firms are charging versus what they are actually recovering.
If you are interested in participating, please contact Lisa Schneider at firstname.lastname@example.org.
Using Outsourcing Request For Proposals to Generate Top Line Revenue
Part of the changing landscape in the legal arena that we have been promoting is the use of the outsourcing request for proposal process to foster a business relationship between the law firm and the vendor providing these services.
With the outsourcing “spend” being in the top five spends a firm has, and these contracts running into the millions, it creates an excellent opportunity for a firm to create a dialogue with their vendor(s) to get commitments from vendors in return.
Does it work?
Yes - in every situation where we have been involved and a firm has used this opportunity, it has either created a meaningful dialogue or a hard commitment for business with dollars attached.
Do the vendors mind? It depends. If you are Williams Lea, which is part of Deutche Post and has a tremendous amount of legal business to spread around, they welcome the opportunity. If you are Novitex (formerly Pitney Bowes Management Services and recently purchased by Apollo Management Group) and do not have the legal spend, they don’t like it.
The bottom line is the bottom line - in this day and age, the top line should be considered with the bottom line.
Mattern & Associates’ End of the Year Top Ten List
As 2013 comes to a close and we finalize plans for 2014, we have identified our top ten list of tasks you can complete that will optimize the cost-effectiveness and efficiency of your back office/support services operation—and a dash of bettering yourself.
- Get your contracts organized. You should have a firm-wide database of all contracts, their expiration dates and notification periods.
- Conceive a plan for the contracts that will be expiring and consider a possible consolidation of services and vendors. Create a plan to make all similar contracts co-terminus so you are not faced with buyouts, early termination penalties if you elect to go that route.
- Organize your year so you have the time to create competitive situations. Your firm loses 10 -20% of potential savings each time you do not engage competitive pricing.
- Promise yourself in 2014 that you will say no to the following: early termination fees, additional permanent withdrawal fees on offsite records storage, non-solicitation fee or severance for out sourced employees.
- Examine how technology can improve your operation’s efficiency and cost-effectiveness. Some examples are digitalization of incoming mail, automated workflow procedures and improved litigation support tools.
- Improve the monitoring of existing contracts and invoicing. Studies show that approximately 8% of the value of invoices are incorrect charges.
- Take a fresh look at back office staffing. With mail volume and centralized copying decreasing, staffing in these areas should be decreased. These reductions may be offset by increased needs in scanning and lit support.
- Examine your current cost recovery strategy. Determine your billable percentages, what is being written off and why and what you are actually recovering. Develop a strategy to maximize the recovery of the items you can.
- While on the subject of cost recovery, participate in the 2014 Mattern & Associates Cost Recovery Study. Contact Lisa Schneider at email@example.com if you are interested in participating.
- And don’t forget to invest in yourself. Take a class, view a webinar, expand your knowledge and talents. Look out for Webinar Wednesdays from Mattern & Associates to recommence in the New Year.
Have a great holiday.