The Path to Managed Services in Discovery

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1 The Path to Managed Services in Discovery KJ Kuchta and Mark Walker N. Central Avenue Suite 550 Phoenix, Arizona

2 The Path to Managed Services in Discovery By KJ Kuchta, CEO and Founder and Mark Walker, Senior Director of Consulting and Client Services Forensics Consulting Solutions, LLC Creating Insightful Discovery Summary Managed Discovery Services provides the operational, standardized workflows, technical specifications, and IT infrastructure support services to corporations and law firms for litigation readiness, discovery process, review, production, and case management. Introduction The electronic discovery market has evolved, and will continue to evolve rapidly. We have an onslaught of new technology meant to provide automation, but in many cases were built for older manual business processes. Much of what we used to do by hand is now done by computer. Handling a piece of litigation, for example, often requires the use of litigation support specialists, records management professionals, and IT gurus. We need project managers to handle the volume and create defensible processes for cases that generate extreme amounts of data, and much of that data is found to be useless. Discovery that previously could be handled by a lawyer and paralegal team now requires an extended team which includes non lawyer technical staff. The price perproject has escalated to match the increased complexity. The process has evolved, has and has become significantly more involved. In many cases, we are allowing technology to drive us rather than having proven processes drive technology. FCS has the solution to this problem. The Corporate View Early on, when the world was less complicated, law firms unilaterally handled the buying of discovery services on behalf of their clients. Today, many corporations are often taking the lead to acquire these services directly from the service providers to return control of the process to them. Motivators for this change include the desire to reduce costs by negotiating contracts across all matters to ensure consisting pricing and data integrity, reduce risk and costs by creating defined, repeatable processes, and take control of the company s data to preserve and reuse where possible. Corporate control of the litigation process has been proven to reduce both the lifecycle of litigation and the cost according to the long term study conducted by DuPont. Thus, litigation readiness and related activity surrounding electronically store information (ESI) and the discovery and management of ESI, has been recognized as a true business process needing management. Outsourcing Traditional reactionary per project outsourcing was the first venture into corporate control over this business process. With traditional models, the corporation relied on the law firm to provide support per project for all phases of an active litigation. The law firm acted as project manager, and generally outsourced most of the discovery related services, while keeping only a few specialty employees in house. This worked until the volume of data became overwhelming. Some law firms have begun to think of litigation support as a potential profit center. Some law firms are even adding their own charges to the costs of the outside service providers even though the service has been outsourced. Some law firms have even Page 2

3 attempted to become a service provider and outside counsel into one bundle creating a potential conflict of interest. Corporations with frequent litigation have taken an active role in an attempt to reduce costs by negotiating directly with select service providers to deliver the range of discovery related services. The problem that has arisen with this model is that the corporation gets a cost benefit from reduced rates, but little add on benefit from repeatability of process, reuse of already reviewed data, centralization of discovery management or consistency of project personnel. The corporation has to turn over complete control to the contractor sometimes with little say, other than their budget limit, in what technology is used or the skill level of personnel working on their data. In other words, this method alone does not give the corporation much opportunity to control the way their litigation is managed. A per engagement agreement allowing the corporation to end the relationship easily is seen as the only protection. The real drawback, however, is how often that end comes sooner than desired due to cost overruns and lack of communication. Parts of the process are undergoing commoditization, and as corporations get more experience in high volume litigation, the benefit of skilled professionals working the commoditized systems becomes evident. In other words, it is not just price per gigabyte or terabyte any longer that are important. The profit margins for this work have become very narrow. It is this realization of the need to access highly qualified staff that drives the corporation to develop a true partnership with their service providers. Rather than negotiate each project on a per project basis, efficiencies can be realized with negotiated master service agreements (MSA). An MSA allows some of the drawbacks of plain per project hiring to be solved through better negotiated rates and provides the benefits of a more centralized system due to consistent service provider usage, opportunity to establish a repeatable workflow, a reduction in rates, and the benefit of not having to allocate any internal resources. The challenges with a pure outsourcing model, however, are still unpredictable costs due lack of control over a la carte pricing, inconsistent project deliverables, and a reliance on the service provider s technology, which may, or may not, be maintained at the level needed for a successful corporation. In sourcing When pure outsourcing options don t work, corporations with large volumes usually turn to in sourcing, which is bringing all or part of the discovery lifecycle in house. In this approach, the corporation takes on the discovery management process themselves. They acquire expensive technology, hire personnel, and build processes to manage many or all aspects of discovery. This brings control back in house, but drives up the internal administrative costs, adds headcount to departments that may not have the budget to support it, and requires the corporation to employ technical discovery experts at market rates. IT has to pick up extra work to carry the software and keep it up to date in a technology environment that is rapidly changing. Personnel turnover puts software knowledge at risk. For corporations and law firms alike, the success of the in source model depends on the corporate buy in for a dedicated department for the business process. A good department might get start up funding, but find later that funding now comes with limits on headcount or technology upgrades. People learn to do more with less, but over time most in house departments have to turn back to outside service providers to help them with larger more complex matters. Inconsistent volume and the associated human and capital investment become difficult to sustain. The in source solution often then becomes difficult to justify over time and fails to remain competitive. Managed Services So, how do you get the best of all worlds updated and controlled technology, standardized processes, and experts available at a moment s notice? Perhaps it is a managed services solution. Managed services have been in use in IT and Facilities Management for many years. Law firms have historically used Facilities Management (FM) services for copy, fax, scanning and now increasing to manage all litigation support activities. The model is a popular and successful solution to the challenges of niche specialties software in particular. Page 3

4 In IT Managed Services, clients can purchase the software or system that they want, hand it to the managed services provider (MSP), and avoid making a huge capital investment in IT infrastructure and personnel to maintain it. They get a predictable pricing structure to use in their budget and still get the use of the systems they want. In some instances, niche software is supported with skilled operators or skilled consultants by the MSP, offering the client backup skilled personnel to provide service beyond that which is commoditized. If the MSP specializes in the market, they can provide standardized processes and direction for how best to handle the crises that arise in a regular industry project. Many large corporate IT departments employ MSPs. Law firms using the FM are now able to offer a wide range of highly competitive services without the associated overhead in reoccurring capital and human expense associated with running a competitive business. Managed services as a format provides a perfect fit for litigation support/ediscovery services. Software capable of handling the volume of today s discovery tends to be complex and require external IT support to run properly, stay updated, and be security tested. For example, a SQL based review program needs formal SQL support as well.)sound and experienced project management of cases is essential for defensibility of evidence. That means skilled well compensated employees. If headcount is at a premium, a MSP can assist with personnel and processes at a moment s notice. So, why is this different than just plain outsourcing? Some of the benefits are: Reduced capital expense; Reusable work product maintain data in a centralized repository where it can be accessed and use it multiple times without constantly re collecting and incurring unnecessary expense; Selective collection collect and evaluate only what the company needs rather than everything over and over, because the data is known and can be identified easily due to having a plan set up when the MSP is hired; Standardized workflow designed to be applied on each case know what s coming next because it is your customized process; Defensible use the MSP processes to enact defensible collection, searching, and review to be sure the data collected and reviewed is actually usable in court; Software maintenance and security is kept up to date and constantly available without your IT team having to keep up with upgrades, security testing, hard storage, remote access, server upgrades, license upgrades, maintenance ; Owned software the corporation would purchase their own copies of the software and have it maintained by the MSP, so there is no room for argument over what suite to use or how it works; Dedicated personnel a team of support staff are assigned to stay with the client for the life of the contractknow the names and their specialties and possibly their foibles, but they are available and paid for by someone else s budget; Fewer personnel on the corporation s payroll the corporation can keep a smaller team on their payroll because they are backed by the MSP team; Predictable costs fees on a subscription basis or flat fees on a monthly basis or yearly fees or there are many different offerings that could ease the volatility of the monthly budget; Control owned software can be controlled by the corporate team alone if need be access can be limited, data can be controlled, yet the system and data remains secure and stable using sophisticated infrastructure rental; and Offsite data housed externally provides an immediate protection against a failure in the corporate environment MSP data center should be highly rated for security, redundancy, risk mitigation, disaster planning, etc.; Page 4

5 Use of best of breed Technology The best technology is not plug and play. Often times it requires a honeymoon period to use the product to master its uses and integrate it into a process. Additionally if a new Technological product has become available and the decision to switch is made, migration from one technology to another can be complex. The same is true for upgrading technology when new features become available. A Managed Services provider is a master in the technology will shorten the learning curve and let the customer reap the benefits over a shorter period of time. What about the disadvantages? Offsite the MSP may have a data center in another state. Some IT departments are concerned by remote administration via external data centers. IT should give some guidance about data housed outside their controlled servers This can be mitigated by conducting security audits and assessments; Face time the MSP is likely not located within the corporate offices so getting know the team who provides backup support must be done by telephone and ; Control this is an illusion most departments in corporations do not have direct control over their data anyway, so this is no different than normal operations; Software upgrade or maintenance costs in addition to the MSP cost, maintenance might go up since the software company controls that cost I don t understand this one. See my note under benefits called Use of new Technology; Controlled costs might lead to smaller budgets for corporate departments if costs are well controlled; Law Firms So, we have pros and cons for the corporate side. How does the law firm differ? As we ve seen, many of the reasons that law firms want to bring discovery support services in house are similar to those of a corporation. Law firm partners and shareholders want to capture the revenue, rather than seeing a third party receives that revenue. They want to keep the relationship with their customer rather than allowing outside service providers in on that relationship. The firm wants control of the discovery process. All are valid reasons that by and large, but are not supported by the business model. There are dramatic peaks and valleys in revenue from a litigation support business. There are enormous IT and personnel expenses that are fixed, whether you have the business or not. Most firms simply cannot justify the expense when they take a hard look at the ROI. Indeed, many have tried to compete by in sourcing these services and failed. Some of those past failures have been to the detriment of the entire firm. Howrey is the most recent example of a dramatic and highly publicized failure and example of a firm unable to compete outside their core competence delivering legal advice. What happens then with managed services for the law firm? The benefits and concerns are similar to those the corporation faces along with some more specific considerations. Fixed costs many firms are facing pressure from clients to offer fixed fee services including the cost of discovery discovery done with a predictable fee goes a long way to making sure the fixed fee actually covers the expenses and makes the firm money; Headcount firms often struggle to justify increased headcount for litigation support this allows access to the skilled professionals needed without carrying their benefits and vacation time on the books; Relationship the firm maintains the primary relationship with their client rather than turning it over to a partner; Profit even a firm that touts its litigation support department as a money maker can sell and make money off a service that is fixed in cost; and Proven technology/software defensibility in the processes used will bolster your arguments are the processes used in your firm currently defensible? Page 5

6 The Better Way SmartSource SM There has been considerable buzz of late about the Cloud. The Cloud, of course, has been around for decades. It is nothing more than outsourcing data hosting as well as services to a company who provides you with access and availability of those applications just as if the hardware and software reside in your own data center. The law firm does not have to build and maintain a multimillion dollar data center that is required today to host sensitive client information. You don t have to manage flux in staff your cloud provider will manage that for you by either helping you staff on your premises, provide that additional surge of human power when you need it, and not having to pay for it when you don t. Storage space is paid for once, with the ability to re use that space as old matters go away and new matters arrive. Superior storage and management of ESI is realized. With the traditional consumption per GB pricing, complete outsourcing requires paying for a GB with each new matter. You don t have to keep up with market pricing, your SmartSource SM provider will keep up with those for you and help you build into delivery of those services a profit or breakeven margin (depending on your business model). Determining the right mix of in sourcing and out sourcing SmartSource SM simply makes good business sense. Lawyers can then focus on being lawyers rather than managing a litigation support business. Corporate SmartSource SM Wait what about corporations? SmartSource SM is the way of the future for the corporation. It combines a Managed Services option with the highly experienced support of a world class discovery services company, Forensics Consulting Solutions. It is a mixture of in sourcing and managed services. For the corporate customer, SmartSource SM offers all of the advantages in risk management, cost limitation, and predictability, while allowing the corporation to maintain as much control as needed over data, software, and inter company interactions. Software investment is retained while the effort and variable cost of maintaining it is passed on to full time specialists who have an infrastructure and processes specially designed to handle it. The corporation, outside attorneys and the service provider all become partners in the effort, each filling the role they do best. With SmartSource SM the corporate need can be met in the most flexible fashion possible. Whether one turns over all the headaches or just some: there is a solution available using managed services and professional personnel support. The Large and Small of It In the end, discovery is growing more complex as each minute passes. It is incumbent upon us to find creative solutions to address this business process in as logical, sustainable and most cost effective way as possible. Using proven solutions already available in IT and other sectors is a practical way to start. Managed services in the litigation support industry are in their infancy, but growing in popularity. This is a great opportunity to look into the options available with proven discovery technology to determine if there is a fit within your organization. Be creative and come up with a new idea of how a different option might fit your organization, and see who will work to fit your needs. Look for established technology and service providers with real experience. New entries to the market may not have the processes or infrastructure to truly support the systems in depth. Many are simply outsourcing their IT to co located data centers themselves, adding cost, complexity and risk. This is definitely one venture best left to the professionals. FCS developed SmartSourceSM to address this worry. FCS is a team of true professionals with the world class infrastructure. Unlike many in the industry, including some of the largest, we built and own our data center. We have the resources needed to sustain this new world of discovery managed services and help you combine your in house Page 6

7 talent with outside support. At FCS, we recognize the true success of our service to our clients is in what we help them save in discovery costs, not in how much revenue we generate in managing their discovery. Don t Outsource your Discovery SmartSourceSM it! Discover FCS: Creating Insightful Discovery About the Authors Kelly KJ Kuchta CEO and Founder Kelly KJ Kuchta, is one of the nation s leading experts in information security and computer forensics. In 2001, he founded Forensics Consulting Solutions, a complex discovery solutions provider based in Phoenix, Arizona. Mr. Kuchta is an Information Security and Computer Forensics Consultant with nearly 20 years of experience in computer, physical and operational security issues. He supports his clients by providing Forensic Incident Response, Forensic Litigation Support & Information Readiness Solutions. Mr. Kuchta has 16 years of experience in the Banking, Insurance and Financial Services Industry. During this time, his responsibilities included managing Fraud Investigations (including computer related incidents), Physical Security Reviews, Risk Management Operations and E Commerce initiatives. He has conducted or managed in excess of 5,000 investigations in his career. K.J. has been credited for introducing many groundbreaking ideas and concepts in the areas of risk management and investigations. Mark Walker Senior Director of Consulting and Client Services Mark Walker came to Forensics Consulting Solutions as a Senior Consultant with more than twenty years in litigation support services, including time he spent as a trial paralegal, logging more than thirty commercial trials, the corporate law department, and Director of Litigation Technology and Support in the law firm environment. Mark s responsibilities included handling and coordinating litigation support services. After joining FCS in early 2007, Mark s extensive knowledge of legal technology soon became apparent and he was quickly promoted to Senior Director of our Consulting and Client Services organization. In his current position, Mark interfaces with law firms and corporations to develop and manage technology solutions to meet our clients needs. Mark is a sought after speaker and lecturer, an award winning author of multiple treatises and articles, and a nationally regarded expert in the field of electronically stored information. Mark also authors the popular blog on electronically stored information which can be found at Page 7

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