Best Practice Cost Recovery & Management

Best Practice Cost Recovery & Management

Best Practice for Cost Recovery & Management Introduction... 2 Manage... 3 Best Practice 1 Top Down management... 3 Best Practice 2 The internal policy for Cost Recovery & Management... 3 Best Practice 3 External communication... 3 Best Practice 4 Cost analysis on all disbursements... 3 Best Practice 5 Changing the culture... 4 Capture... 4 Best Practice 6 Cost monitor rather than recovery... 4 Best Practice 7 Pricing structures... 4 Best Practice 8 What to charge for?... 5 Recover... 6 Best Practice 9 No longer charge back... 6 Best Practice 10 SRA says no... 6 Best Practice 11 Client says no... 6 Conclusion - Law firms say yes... 6 Comments from Law firms... 6 Response from a law firm with regards to Best Practice 6, Cost monitor rather than recovery... 6 Response from a law firm with regards to Best Practice 9, No longer charge back... 7 Response from a law firm with regards to the overall document... 7 Response from a law firm with regards to the overall document... 7

Introduction The objectives of the Best Practice discussion are to establish the trends that firms of varying sizes have noticed with cost recovery and management. If you are presented with managing the cost recovery project then this document is designed to assist with the themes to think of, cost recovery is no longer the poisoned chalice to look after that it may once have been. The general consensus that came out of the discussion was that there seems to be a shift in attitudes of law firms, they are becoming even more aware of their costs, their profit and loss account and how are they going to cover those costs that are incurred when conducting work for clients. The change is that law firms are starting to be run as businesses rather than just practices and partnerships of legal expertise. This is evident in the rise of law firms first of all, employing CIO s and secondly, those CIO s having no legal background. The firms that contributed to this guide were: Appleby, Bond Pearce, Clifford Chance, Fishburns, Hill Dickinson, Parabis, Wright Hassall.

Manage Best Practice 1 Top Down management The management of a cost recovery strategy needs to have Partnership buy in. Every person involved in the discussion agreed that a Top-Down approach is the most powerful asset when convincing the rest of the firm that the process of capturing these costs is for the greater good of the partnership s profitability. Best Practice 2 The internal policy for Cost Recovery & Management This top-down approach should also include the drafting of a Cost Recovery and Cost Management Policy. An idea which came out of the roundtable was producing a template policy document for distribution to the legal IT community. This would assist firms in starting to generate a movement within the partnership about effective cost recovery and management to support the business. The Policy document will be generic so it can be tailored to suit your needs but it is designed to be a collaborative tool within your firm to ensure that all the needs of the legal departments and jurisdiction are met. The type of legal work being conducted has implications on the recovery rate and therefore the pricing structure for each department may, as was discussed, be different and may be tiered. For instance, the pricing structure for an insurance client may not be the same for a corporate or litigation client. Best Practice starts with getting the policy right, getting the fee-earners comfortable by IT, Facilities and the Management team knowing and dealing with their requirements. A comment was made which highlighted a fear that creating a policy document might suck the resources that are already stretched to the limit in this climate. The importance of this document, and the fact that we are providing a template to assist, will mean that the management board are driving this document because they need the costs to be managed and costs incurred to be recovered. It is imperative to the finances of their business that they are making steps to manage and recover their costs. Best Practice 3 External communication A key driver of the management of costs came from the communication between the Partner of a law firm and the client at the engagement stage and, if necessary, the review of the contract. It became apparent that the client played a significant role in shaping the policy in cost recovery and management. We will talk about clients again later on in the document. Due to the above, law firm procurement teams are increasingly getting involved in discussions with their client s procurement teams to ensure that everyone is getting the most out of the contract in terms of value for money. It was stated that if you didn t have a cost management tool in place, these discussions would become very difficult, especially if using fixed fee pricing structures. Best Practice 4 Cost analysis on all disbursements Conducting all sorts of analysis on everything to do with the costs involved in a legal transaction with a client was mentioned on more than one occasion by people from different size firms. Cost analytics can encompass a variety of measurement methods, some of which are stated below: A comparison between the costs associated with an employee doing some copying/printing internally versus looking at the cost of an outsource company to do this job

A time and motion analysis of the time taken to walk to a device. Is the time taken for this motion comparable to the monies charged per billable hour for your partners and fee earners? The actual costs that are involved with printing and copying The click costs involved with printing and copying The notional costs Best Practice 5 Changing the culture There is a focus/concern about reducing the amount of paper from a cost point of view and reducing the amounts of local printers. Traditionally, there have been printers within an arms length of a Partner or their secretary. From the cost analysis conducted in some firms; this is changing to a slightly different model where the local printers are being replaced with MFD s. This is where secure/follow-me printing is bringing benefit to the business, in both paper saving and secure access to your printed documents. The other element of the change in culture at a law firm is the new generation of technologically savvy lawyers that are coming in to practice law. They are business minded people who practice law. They are aware that the traditional approach to local printers as seen above is not cost efficient and therefore doesn t add to the profitability of the firm, therefore, they are happy to support the new model of using volume intensive devices. They are also looking at the bigger picture of the whole costs associated with working for particular clients, such as taxi s, couriers and general expenses. The other element that seems to be inherent in law firms nowadays is the environmental issue. This assists with the corporate social responsibility of the firm and also assists in changing the culture. Embedded technology is at the forefront of reducing footprint and energy associated with external cost capture devices, but the jury seemed to still be out on whether the technology is on par with an external control device. It s not just law firms that are changing their culture though. It was stated some cost recovery companies were following suit providing print rules, scanning workflow and expense management solutions to provide a one stop shop for all their workflow and management needs. Capture Best Practice 6 Cost monitor rather than recovery One of the main points that came across from the majority of firms at the roundtable is that the future of cost recovery is evolving into being more about cost management. However, it became apparent that in order to manage your costs, you still need to capture those costs, and capture all of them. By ensuring that you have a solid, reliable management tool to allow you to capture costs at the point they are entered, you are able to pass that information into the PMS or billing system to put onto the client s bill. This information also assists in the analysis and reports to prove the fee charged to the client is justified. Best Practice 7 Pricing structures The idea of standardising the pricing structures for law firms is not our intention. However, it became apparent in the discussions that some firms had a requirement for tiered pricing to allow for all types of client and all types of work, for instance copying or producing e-bibles.

With these comments came some cries of relief from some of the delegates as there is no right or wrong way to price a piece of paper that has been processed as a photocopy, but instead there is a cost analysis (Best Practice 4) to at least assist with getting closer to the true/realistic cost of a photocopy. Recovery costs (or chargeback costs) it seems can be set on many levels e.g. internal for non-billable, a different cost for clients which can be billable, a managed service costs and possibly an outsourcing cost. If disbursement costs are lowered to actual costs then it makes it easier to pass them on to the customer as they become comparable or better than what can be achieved on the high street. The flip side of pricing structures is the fixed fee arrangement and how that contributes to the profit and loss accounts of the firm. The capturing and recovery functions, however, enable you to provide transparency by showing clients reports on all transactions processed to their matters or file numbers. This gives the Matter Managers or the Partners in charge of the client relationship more evidence/clout to prove their fixed fee arrangements are fair, justified and not a profit making scheme. This gives those Partners the opportunity to increase their profitability. There seems a need to educate partners on what the costs are so that they are in a stronger position to be able to negotiate fees with clients, or they could end up coming short. This then refers back to the general theme where law firms need to start thinking of their partnership as a business. Some firms discussed that they bill some of their clients monthly, yet for other firms, the billing process occurs once the matter has closed, leaving the firm with monies owed to them. It was expressed that it is more palatable to write off disbursements than WIP. If a monthly invoice was issued with the disbursements detailed, the figure of these disbursements would not be so high and therefore, attract a complete write off from the partner who doesn t feel it is right to charge the client that amount of money. Best Practice 8 What to charge for? Firms who attended the roundtable discussion seem to be capturing all costs associated with: Print, Copy, catering, courier, taxi and reprographics disbursements. A question was asked about the distinction between copy and print and surely if you charge for one then you must charge for the other? Traditionally, copy was the disbursement that a firm was able to charge back for, but with the increase of print and the fact that the out put is invariably coming from the same device as a copy page, the lines are getting blurred. Just as these lines are getting blurred between charging and not charging for scan. A comment was made that there are different levels of scanning and some of it should be charged back where it involves specialised scanning such as scanning to CD and e-bibles which involve a lot more time and motion, storage space and equipment. If you think of the models mentioned in Best Practice 4, why not recover costs for scanning? If you outsourced the scanning you would. The requirement of some firms implementing secure print due to the types of clients they are working with is increasing, plus, there can quite easily be a demonstration of the cost savings associated with a system that can purge documents that haven t been retrieved from a print queue. These cost savings are ultimately passed onto the business paper savings, toner savings etc. Some firms felt they couldn t charge for certain disbursements in some offices, due to the local laws and rules. Another comment around charging for print, was the use of page thresholds. Charging for every page was seen to sometimes be a waste of time, because many small print jobs would not be legal documents that required association with a matter. A variety of thresholds are used across different sized firms, but it was unanimous that at least a 5 page threshold was the starting level.

Recover Best Practice 9 No longer charge back Law firms need to know about their costs, they need a cost management tool where they can analyse the contribution of disbursements to their profitability, however, there is a move away from the traditional chargeback mentality of old. The cost recovery model is no longer about chargeback to make a profit, but to make sure you re-cover the actual costs incurred whilst working on a particular matter/case. It seems that the attendees of our roundtable agreed that the perception of using cost recovery tools to make a profit have long gone. Best Practice 10 SRA says no The policy from the SRA is that a law firm is not allowed to make a profit out of charging back for disbursements. Using a management tool to demonstrate that there is no profit being made, but a recouping of the costs that have been incurred is incredibly powerful. Best Practice 11 Client says no Ultimately, the recovery strategy is driven by the clients and how much your firm can justify the costs by demonstrating, using examples and statistics, that your service is worth paying for. The value of transparency is more present today than it ever was. Yet the partners managing this relationship have to maintain that the contract must remain profitable. Accuracy of costs by monitoring all of them has enhanced the validity of these charges being passed to the client and improved the credibility and reputation of the partner/firm. For example, you are far better off charging for copy and print transactions at a more realistic 12p* per page, than only charging for copy at an inflated rate of 40p* per page. *these are fictional A4 BW prices used as an example only Conclusion - Law firms say yes With the appropriate Cost Recovery and Management policy in place, the buy-in from the Partnership, the correct and well researched costs for all transactions, the best management tool that your money can buy and ultimately, the business savvy lawyers of today and tomorrow, your firm will grow into the businesses that they need to. Your firm will be competing with all the other law firms out there for business. The law firms that follow these suggestions for best practice are the firms that will no doubt emerge victorious with the (legislative) changes on the not too distant horizon. Comments from Law firms Response from a law firm with regards to Best Practice 6, Cost monitor rather than recovery As a firm, we are interested to understand exactly what is being processed by our MFD s. As the line between print and copy continues to blur, we have decided that we need to understand the big picture of volumes of print involved in order to work out a charging strategy to at least ensure that we cover our costs. As a business (and like many others), we have been charging for copying for a

number of years. We do understand though that many support staff would rather print a document now than copy it (if they can). One of the main reasons for this is that you can do this from your desk and not whilst standing in front of the device. To this end, we use are currently using Copitrak s toolkit to enable us to understand the trends around print v s copy and are now looking at how we can cross-charge/capture these charges accordingly as we have all that data now available to us (as our print charges are the same to us as a document photocopy). Response from a law firm with regards to Best Practice 9, No longer charge back In general this seems to be a fair summary, although I have the following comments: Best Practice 9. At my firm, we have never purposely had a profit element in the disbursement costs since I've been there. I think it's unwise to suggest that law Firm's have been including a profit element in their disbursements. It's about recovering the costs incurred. Happy to discuss and do think that any suggestion that disbursements did include a profit element is not correct, albeit the perception might have been they did and the prices themselves may have suggested that was the case. The key is that better recovery of disbursements means that the profit generated by fees is not negated by low recovery due to prices seeming to be too high. Response from a law firm with regards to the overall document Just read the best practice draft, a good document and will certainly provide a good platform from which to build. I think my firm s policy is well tuned to the emerging influence of the client in this area and I'm sure a lot of firms have developed systems that allow for this. However, despite our best efforts to produce more sophisticated cost recovery mechanisms that are sympathetic to the FE/client relationship, I think too many anomalies remain. This was evidenced by the different understandings and interpretations of the main issues, which alone made the forum very interesting. I am about to start our annual review, which has been timed to coincide with the release of the revised SRA handbook (http://www.sra.org.uk/handbook/) and new regulations that could affect current practice. I would encourage all interested parties to scour the 700+ pages and highlight anything that could impact cost recovery / management. In addition, I suggest we invite an SRA representative to the next meeting to open dialogue, exchange up to date information on emerging issues and to clarify 'rules' that could allow the SRA (and us) to offer better advice in this area. Response from a law firm with regards to the overall document I have had a read through this document. I feel it represents much of what we covered in the open forum. If I was coming into this arena for the first time and had access to the document I feel it would definitely steer me in the right direction to plan a successful implementation of a cost recovery solution.