These are notes are from a panel discussion session with Joan Axelroth, Axelroth & Associates, Anthony A. Licata, CFO of Dechert LLP and Nuchine Nobari, Library Director of Edwards Angell Palmer & Dodge, LLP. The session was moderated by Sarah Mauldin, Head Librarian of Smith, Gambrell & Russell, LLP. Note: these are my selected notes from this session; any inaccuracies or omissions are my own. I welcome your comments and follow-up thoughts!
A panel discussion...
Is it ethical to charge clients for online research?
Axelroth: ABA put together an opinion on charges other than professional fees - library, computer research, third party providers - should be treated differently. You can charge for computer services, paper, person running the searches, etc. You have to pass on any discounts received from third party providers.
Can firms add a mark up to online search charges?
Axelroth: The fairness factor: is it fair to the firm's clients and the firm's attorneys. Are paid clients subsidizing non-paid clients? (Are you non-paid clients your larger clients who have negotiated this?)
Licata: Dechert model - most libraries have fixed fee contracts with the large providers and pay a retail rate for other 10%. There is risk to chopping up a fixed fee contract - they create a usage model, put all the usage for a month in and then "chop it up". They also look for trends; e.g. February has fewer business days than March, so individual searches that month cost more so they make sure they take a loss on every search. They actually mailed cheques back to their clients because they were able to reduce their online costs. "Usage swings wildly" so they track it carefully.
What are the trends on recovering for services that firms pay a flat fee for, regardless of use?
Axelroth: Percentage of recovery of costs by firms is going down. Indications show this is only going to come back a little. "Slicing and dicing is getting so complicated" partners are not understanding it and cannot explain it to their clients, so they are writing things off.
Does your firm attempt to recover costs for other services (especially local pay per use services) e.g. BNA, Bloomberg Law, Casemaker, CCH Intelliconnect, Fastcase, Hein Online, Loislaw, PACER, RIA Checkpoint.
Licata: They have tried to take the discussion away from the billing partner. They don't expect partners to; they ask the client finance person talk to the firm's finance person to walk through it. They make the attempt to pass savings along to clients. Clients are welcome to discuss deals up front, but they are not comfortable just billing full cost to clients.
Nobari: it is sometimes comparing apples to oranges. Lawyers would only go to alternative sources if they are as sophisticated sources as Westlaw and Lexis. Her only success is Fastcase; it has fewer bells and whistles for just basic reading of cases. They used this to manage use of Westlaw and Lexis. Lawyers are more reluctant to use Bloomberg Law, so they had less success with this service.
What is the trend with regard to following up on online charges that are written off?
Axelroth: 62% of firms track write-downs or write-offs of electronic research charges to see what can be billed back. The goal is to try to change lawyer habits. You need management to support this, and possible a reward/punishment system.
Licata: library staff don't running around up front trying to figure it out; they put in a "fairly diligent budget process" a few years ago. If the lawyers don't put something on a client bill, it is put into that lawyer's departmental budgets. Budgets got a lot of attention; they looked at because there were other things they wanted to spend their budgets on.
Nobari: spend 2 hours of staff time every week: letting the lawyers know if there is a better way of doing research because they may not know the most efficient way; they email aggressively to encourage lawyers to bill back to clients rather than charge back to office. They have decreased usage of Westlaw and Lexis by 20%. Start with your 20 least effective users and follow up with them.
What is your firm's average rate of recovery for Westlaw and Lexis research costs?
Licata: they recover about 70% of their contract spending. It is a line item everyone understand. Clients don't necessarily understand why lawyers need to have legal research, they expect the lawyers to know. You need better communication with the clients showing value. Help put clients' focus on their overall value from the law firm's work.
Nobari: they fall pretty much within the same ranges. They work with consultants to compare, and they are comparable to others.
What are the trends for using cost recovery tools like OneLog, Research Monitor, Lookup Precision?
Licata: It gives them more data, but he's not sure it helps them recover more. He gives a qualitative "yes it does" because information helps you back up your argument when trying to change lawyer behaviour.
Axelroth: using software for recovery is one reason, but you can use it for things like acquisitions decisions and others. Even if you are not charging back (rolling online charges into overhead), have attorneys input client matter number to get an idea of needs by individual clients. Greg Castanias gave an impassioned talk at the PLL Summit
asking us to put pressure on the vendors to give libraries what they need to get results.
Nobari: a research tool to help you qualify and quantify are useful. Librarians are the ones who get calls when something is going wrong with the vendor databases. Make sure you are part of the conversation when your senior management want to change the research services the firm subscribes to.
Are clients pushing back against paying for online research resources?
What is the trends for firms no longer charging back?
Licata: you need to understand what your base level of overhead is, and what $ is needed back to keep things going. Firms ultimately will not be recovering less, it will just be recovered in different ways. He thinks clients are asking the wrong questions. Clients who ask not to pay these fees are asking firms to be less transparent.
Nobari: the lawyers' margins on specific work are so thin since they are now moving to flat fee and volume arrangements for clients.
Axelroth: in response to Licata, says you can still track what research has been done for the client. You still want to track this internally. (Licata's response: he was not saying they would be less transparent, he was just looking from clients' viewpoint).
Audience comment: they blocked 1000 "mysterious" client numbers that did not get research billed back; also, she is seeing dramatic shifts of "new guard" products replacing use of "old guard" products by tracking usage.
Licata: doing what they do depends on the firm culture.; they try to run their firm more like a business than a law firm.
Licata: library costs are less predictable than other firm expenses such as leasing space costs. He puts the responsibility for recovery of costs on the shoulders of accounting departments, telling law firm CFOs with respect to working with libraries: "If you don't learn what they do and how they affect financial statements, how are you going to teach them about financial statements?"
Q: fixed fees of attorney costs?
Licata: varying levels of usage for all these tools. He encourages discussion around costs early. Sometimes it becomes a volume issue, so it depends on what the firm is doing.
Q: looking at possibly rolling these expenses into overhead and want clients to know this is what they are being charged to. Thinking of rolling it into a "research charge" charged to all clients equally. Are there ethical concerns?
Licata: being transparent is the right thing to do; however, client doing 15 real estate transactions is going to question 15 research charges. Law firms don't get all terms of arrangement into the agreements; don't have a handle on how we do research. Need more documentation in the arrangement letters.
Q: Usefulness of the tracking services from the publishers?
Nobari: Neither PowerInvoice from Lexis nor Quickview from Westlaw provide you with enough information to be used in negotiations later. They are not research tools.
Q: if they role the cost of the two flat rater contracts together and bill clients back according to that, are there any ethical problems with this? They are not looking to make a profit.
A: No ethical problem if you are not making a profit. It is an interesting idea.
Nobari: get an opinion on ethics from a lawyer so that you do not get caught in the middle. Let the lawyers decide how much they want to bill the client.
Comments: Do we add value to the firm when we follow up with lawyers about expenses being written off? You need to also look at actual recovery as well. She asks the lawyers "Was there a problem with the service? Did you not get the service you wanted?" The third party tools helps her see where someone needs more training.