The Impending Demise of Cost Recovery
By Rob Mattern
This article was first published in ILTA’s June 2011 issue of Peer
to Peer titled “Law2020TM: One Year In”
The recovery of costs associated with managing a legal matter is as old as the legal profession itself. However, as we sit here in 2011, changes to the traditional model are already taking place, and by the time 2020 arrives, law firms will have completely changed their approach to cost recovery.
My company has conducted the Mattern Cost Recovery Survey for the past six years, most recently in 2010. Shared here is information based on the results of that survey and on my daily interactions with law firms on an operational and strategic level.
Click here to read the full article.
Maximizing the Efficiencies of the New Office Designs
By Rob Mattern, Published NYC ALA May-June 2011
Office Design: This article will focus on the structuring of the support services to maximize the efficiency of the new wave of the legal office environment. Areas of focus will be deployment of multifunctional equipment, exploration of the services that should be offered and the concept of off-site services.
The role of support services in the new wave of law firm space design is critical to the success of maximizing the efficiencies and effectiveness of the new layouts. Equally, if not more important, is the technology utilized to support these services. The move to dedicated conference center floors, increased usage of print and scan technology, flex space, and the use of pod type layouts necessitates a thorough understanding of the new role of the support services in supporting these initiatives. Another role is the firm’s strategy on cost recovery and the relationship with the support services.
To read the full article click here.
Output Management – what is it and what does it mean?
I don’t get it.
The price of black ink contained in the ordinary ink cartridge costs in excess of $4,731.00 per gallon. Color ink is in excess of $7,000 per gallon. But we have people all over the United States rejoicing because the price of gas has dropped to less than $4.00 per gallon (even though last year it was less $3.00).
Hewlett Packard’s profits, according to their latest quarterly report, are up over 15% from last year. Output (printed pages and copies) is increasing at over 7% per year with all the growth in the areas of print.
Granted, not many firms are using ink cartridges but toner prices are not much better as compared to the other commodities.
In spite of these costs, most firms lack a comprehensive plan on how to manage their black & white and color output. They are over-equipped with their end users printing to the most expensive devices with over 50% of firms lacking a cost recovery strategy for their print.
To answer my original question – What is Output Management? It is creating a comprehensive, firmwide plan to produce printed output in the most economical way possible while not inconveniencing the end users. And what does it mean? From a financial point of view, a fifty percent (50%) reduction in your output costs.
Now let’s go get some of that profit back from Hewlett Packard.
As with Little League baseball, the pendulum is now swinging the other way on soft cost recovery.
On May 11th Daniel Fischer in his blog Full Disclosure (http://blogs.forbes.com/danielfisher/page/3/) writes about a gentleman David Paige and his company Sterling Analytics that audits law firm’s bills for companies such as Regions Bank and Avalon Bay and KB homes. He lists none (9) different ways” law firms pad partners’ profit-sharing at the end of the year but don’t pass the legal or ethical smell test”.
In summary these nine (9) areas are:
1. Grazing – this is where high earning partners spend time with lower-ranking Attorneys to discuss their cases
2. Conference rooms – Some law firms bill out their conference rooms under separate LLCs
3. Pyramiding – Firms charging 2nd year lawyers to make copies, etc.
4. Piling on – Multiple partners billing for the same task
5. Photocopying – Should all be overhead
6. Billing preparation – Even though this was allowed under the Bankruptcy code, Mr. Paige says no client should put up with it.
7. Unspecified Expenses – Billing a percentage of the fees as a miscellaneous expense
8. Paralegals - He contends they should not be used for routine tasks at $100 - $300 per hour
9. Partners – Rainmakers at $750 per hour billing for routine work
While I cannot comment intelligently on every one of his nine areas, I can say that I think he is wrong about number 5 photocopying and number 6 billing preparation. As with most commentaries of this type, Mr. Paige is trying to justify the use of his services and his claims do pass the “smell test” of reasonableness.
In regards to photocopying – if the copies being made are part of the actions of the case and are “priced” fairly or they are hard costs pass-thrus from a third-party vendor, then why are they not justifiable and reimbursable? To label all copies as overhead just shows a poor understanding of the legal process. That is not to say that there are firms out there that charge excessive rates for in-house copies? Absolutely but let’s target them and not paint the whole industry with the same brush.
The example he uses to justify his claim is Baker & Hostetler charging $2,000 for photocopies on a $43.2 million dollar bill – what is wrong with that if the copies are justifiable and the rates reflect the firm’s costs?
In regards to billing preparation, if it is allowed under the Bankruptcy code, why shouldn’t a firm bill for it.
McCarter & English and Marshall Dennehey increase billable cost recovery revenue with a change in strategy
As mentioned in out Mattern Minute of April 29, 2011, the 2010 Mattern & Associates Cost Recovery Survey has generated quite a bit of media attention and justifiably so. If a Firm takes the benchmarks and industry trends that the study highlights and applies them to their support services operation, they will be able to make a significant impact on their billable cost recovery revenue. As I blogged on March 16th, McCarter & English is using the increased realization of hard costs through the implementation of Mattern Plan B Cost Recovery™ for its Lit Support department. Another one of our clients, Marshall Dennehey is starting to capture and charge for black & white and color scans. This additional cost recovery revenue will equal the current billable recoveries for b&w copies. In other words, by capturing and recovering the current scan volume, the Firm is positioned to double its monthly billable cost recovery revenue. (yes, that is correct). This engagement is detailed in the case study listed on our website under the media section titled Triple Play. (Click Here).
Many Firms that we speak with are caught up in the “antidotal” world of cost recovery. They won’t even discuss changing policies based on a singular event such as a client pushing back or refusing to pay for soft cost recoveries. Our recommendation is to examine the facts and trends, gather unbiased data, and apply your firm’s experience to develop a cost recovery strategy that will maximize billable revenue in the new legal economy.
