Tips for Entering a Flat Fee Contract
Recently it was reported in the Pittsburgh Post Gazette that Buchanan Ingersoll & Rooney entered into flat fee e-discovery contract with a company by the name of D4. D4 will work with Buchanan Ingersoll’s litigation support department to handle e-discovery consulting, collections and forensics, processing, predictive coding, analytics, hosting and review. The firm is paying a flat contract price for up to three terabytes of data to be handled by D4, with the option to buy an additional plan if the firm exceeds that data limit.
The whole flat fee model is attractive but there are a few things to be aware of:
Key contract terms - Flat fee all you can eat contracts such as these must contain underusage reconciliation, monthly performance criteria, reporting and scorecards.
What happens if you build it and they don’t come? - In order to optimize the value of a flat fee contract, firm management must mandate their usage. Individual users have to be forced to send their work to the designated vendor. Issues that frequently occur are client driven vendor preferences, or the firm management does not have the mandate to force the issue.
Recovering the costs - Legal Research - A great example of what not to do.
The key to the flat fee set-up is the policy for the recovery of these costs and the pricing. An excellent example of what not to do is what has happened with legal research. Based on the Mattern & Associates 2014 Cost Recovery Survey, the majority of firms are still attempting to recover legal research costs, but the net realization of these costs is at all time low. The primary reasons given are clients’ refusal to pay and internal attorney write-offs. Both of these reasons can be attributed to the pricing policies that many firms employed to recover legal research costs under the flat fee arrangements the legal research vendors were providing.
Our recommendation is to structure the recovery cost as a hard cost pass -through (Mattern Plan B Cost Recovery) or to “net” out your true costs and pass this cost through to your clients. Additionally, educate your billing attorneys and keep the process transparent to the end users.
How do you know your contract is “working”?
One of the most interesting things I find in working with human nature is the divergent range of satisfaction. We will work with clients who say their vendor is doing a great job; however when we dig into the operation, we encounter excessive turnover, unfair pricing practices, non-adherence to negotiated performance standards and a whole slew of other contract and performance issues. On the flip side, vendors who are performing well are criticized due to a personality conflict or a misguided perception.
Here are some “unbiased” guidelines, based upon our 17 years in the support services consulting business, on how to know if your contract is working:
- Do you get monthly or quarterly reporting? If a vendor is doing their job well, they should be begging to get information in front of you to show you what a great job they are doing. Lack of reporting usually indicates there is an issue they don’t want you to know about.
- Invoicing. Are the vendor’s invoices timely, accurate and easily understood? If they fail any one of these criteria it usually indicates an issue.
- Turnover. Do you have excessive turnover either in management, or if your contract contains a labor component, with your services onsite? Excessive turnover (30% on site, much lower offsite) usually indicates an issue with pay rates, lack of growth, company policies, etc.
- Not enough turnover. Say what? Not enough turnover with your onsite personnel is also not a good thing. It indicates a lack of growth opportunities, but more importantly, you are paying the higher cost of these outsourced employees who are staying on your site instead of the market rates that new employees placed at your site would be getting paid.
- Ask the end users. A good gauge is end user satisfaction - survey, form a focus group, ask at company meetings. Better yet, your vendor should be doing these same things.
If you have a contract and are not sure it is “working”, reach out and ask us. We will probably have a solution that will work for you.
Put this on your do list: Do join Mattern & Associates Webinar “Strategic Expense Management” on Wed, June 25 12 EST
“Strategy is what you do, not what you say,” author and academic director Roger Martin
Mattern & Associates was proud to be a sponsor of the fourth annual PwC Law Firm Services Global Forum held in New York where Rob Mattern also delivered an educational session on strategic expense management—a session focused on concrete strategies firms can ‘do’ and implement today that will yield both the short term and long term benefits.
At Mattern & Associates, what we ‘do’is capture significant cost savings and operational efficiencies through custom analyses, the industry’s most comprehensive benchmarks, incorporate cost recovery to positively impact the bottom line, and generate strategic solutions to improve the back office in the long and short terms.
In addition to the importance of what we do, however, is how we do it—and how we do it is to deliver value in each engagement that exceeds cost savings, from educating the marketplace on best practices to delivering that expertise as an ongoing resource to our clients.
Please ‘do’ join us on Wednesday, June 25th at 12pm EST for our webinar, “Strategic Expense Management.”
We think if your firm is interested in increasing operational efficiencies in your back office, driving value from your vendor relationships, and having a comprehensive understanding of the impact of cost recovery strategies on the bottom line, then you will walk away with strategies you can implement at your firm today.
This webinar will cover:
- Defining strategic expense management and differentiating it from mere pricing exercises
- How to take into account top line revenue ramifications – potential new business intake and cost recovery revenue
- Why contract terms mandate flexibility, assumption, performance reporting—and most importantly, monitoring
- The significance and rise of alternative service delivery models
- Whether and how to future proof your contracts
To attend the webinar on Wednesday, June 25th, please email Lisa Schneider at email@example.com for the registration link.
To learn more about what we do and how we do it, read some of Mattern& Associates success stories here.
If operational excellence is the goal, strategic expense management should be in your toolkit
“The essence of strategy is choosing what not to do.” Michael Porter, Bishop William Lawrence University Professor and leading authority on competitive strategy
If your firm is not interested in increasing operational efficiencies in your back office, driving value from your vendor relationships, and having a comprehensive understanding of the impact of cost recovery strategies on the bottom line, then your firm may not need strategic expense management.
However, if it is the opposite, and your firm strives to stay ahead of the curve by continuous drive toward operational excellence, we invite you to Rob Mattern’s recent publications and ALA sponsored podcast on strategic expense management.
Firms understand that the world has changed and that re-examining cost, and cost structure are of critical importance. But how many firms have responded successfully to changes in the financial markets and the new economic demands of their clients; how many have stayed their usual course, and struggling to manage costs, improve services to their end users, and recapture lost cost recovery revenue.
Mattern & Associates is constantly expanding our strategic thinking about your firm’s expense management decision processes, generating creative solutions to improve both long term strategy, cost-effectiveness and cost recovery to positively impact your bottom line and overall operations. Click here to listen to Rob Mattern’s Legal Management Talk podcast, or read Rob’s latest Legal Management article, “Six Business Strategies for the C Suite” here and gain powerful insight about the future your firm’s strategic direction on these topics and more:
• Strategic Expense Management is more than just a pricing game. Leverage RFP processes, cost recovery strategies, and more
• Alternative methodologies of cost recovery have been implemented successfully at peer firms
• Concrete examples of how a firm can drive top line revenue as a value-added benefit through the Request for Proposal process
• Top strategies for reimbursable and non-reimbursable expenses your firm can implement today
• How to successfully future-proof your contract.
We Invite you to Participate in The 2014 Mattern & Associates Cost Recovery Survey
Mattern & Associates is proud to announce that 2014 marks the 10 year anniversary of the Mattern & Associates Cost Recovery Survey, and the Survey is now live!
Over these ten years, we have drawn broad participation from the nation’s most distinguished firms. This is because the results participants receive are broadly viewed as an invaluable and a concrete, decision-making tool. Legal industry leaders have described the Mattern & Associates Survey as, “The most comprehensive snapshot of cost recovery trends and practices available in the legal field.”
Conducted over a 30 day period, the 2014 Survey will explore traditional, modern, and emerging cost recovery area, including:
- The percentage of firms implementing alternative methods of recovering soft costs, and that this was on the rise.
- Percentage of clients continuing to push back and refusing to pay certain soft cost recoveries, especially percentages in the areas of legal research and B & W photocopy.
- Print and scan recoveries across the board continued to increase with some of the lowest push back percentages in the 2012 Survey.
- The net realizations of soft costs continued to erode while hard costs’ continued to significantly increase.
Participating firms receive a fully customized report comparing their firm’s cost recovery practices to industry benchmarks; survey details are broken down by firm size and geographic location and are reviewed in conjunction with one of Mattern’s cost recovery experts.
If you would like more information on the Survey, please join us for a webinar on Wednesday, April 16th at 12pm EST. During the webinar on April 16th, our Director of Operations, Joe Grubb, will review best practices for preparing and answering the 2014 Survey questions as well as avail his expertise to answer any other questions regarding this year’s Survey. If you want to join the webinar on April 16th, click here to register directly: https://www1.gotomeeting.com/register/696116961.
We hope you join your peers and participate in the 2014 Cost Recovery Survey. Please contact Lisa Schneider today at firstname.lastname@example.org for the Survey link.