Firms beginning to take flat-fee model to e-discovery

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As many firms continue to grapple with how to manage their clients’ e-discovery needs, Buchanan Ingersoll & Rooney has used its analysis of years’ worth of discovery data to negotiate a flat rate with a managed services provider for the entire spectrum of e-discovery services.

The move brings risks for both sides given the contract price is based on an estimated amount of data the firm expects to handle in the next two years, but leadership has said the month-old deal has already generated thousands of dollars in savings for clients by giving them access to technology the firm didn’t previously have in-house.

Under the contract, e-discovery services provider 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.

“Every day some new technology is coming out and if you make the investment internally — unless you have the ability to go back to the well every time some new technology comes up — oftentimes you don’t have access to that if you are doing it internally,” said Stuart Claire, manager of litigation technology support at Buchanan Ingersoll. “So that was an advantage of going to managed services.”

Buchanan Ingersoll said it was able to reduce the risk of moving to a managed services model on a flat-fee basis because of a project management system the firm implemented two and a half years ago. The system also happened to track and store information such as how much data clients were putting through the e-discovery spectrum and what it was costing them.

“That was crucial to being able to do that analysis,” Mr. Claire said. “Five years ago, if you asked me how much data are you seeing in any given month or across a year, I could give a pretty good guess, but now with our project management software, that guess … is now accurate.”

The firm analyzed that data, predicted what that total would be over the next two years and presented a number to D4. The company then gave the law firm “very favorable rates,” to process the data that Mr. Claire said are transferred directly to the client. Rather than getting bids for individual matters, the firm can now do it on a global basis and leverage that work for better rates, he said.

David Cowen, president of e-discovery staffing company The Cowen Group, said a recent survey he conducted of large law firms shows about 40 percent are looking at moving toward a managed services model. And many of those are either being offered or contracted on a flat-fee basis.

The cost of processing data isn't nearly as much as it used to be, allowing vendors to easily industrialize the e-discovery spectrum, Mr. Cowen said.

“The fact that organizations are investing in industrialized workflows and industrialized e-discovery and litigation support allows them to do more for less and offer these lines of workflow,” Mr. Cowen said. “The development of workflow costs $1 million, but it doesn’t cost $1 million to add another terabyte.”

That is allowing vendors to capitalize on the economy of scale. They can hire talent at $55,000 to $75,000 a year to run these systems as opposed to paying project managers $100,000 or $150,000 a year. The risk is less and the vendors are banking on signing up five to 20 clients to create a critical mass. The more clients, the more money falls to the bottom line, Mr. Cowen said.

Jason Lichter, director of discovery services and litigation support at Pepper Hamilton, was hired a year and a half ago to assess his firm’s approach to e-discovery and whether to bring e-discovery capabilities in-house or move to a managed services model. He is a few weeks out from finalizing that process.

He said he had concerns with a fully managed strategy on a few fronts. When it comes to the flat-fee model, Mr. Lichter said there was a risk on both sides of the transaction, with a potential windfall for one of the parties. He also questioned the client bill-back in terms of how firms charge clients for their matters when the firm is paying a flat rate across all firm matters.

Another concern, he said, is one of a capacity issue in terms of having one vendor handle all of the e-discovery needs of 20 firms.

Mr. Cowen said it may be easier for vendors to sell this new business model than to execute it and the ones that execute it the best will come out as leading providers in the next few years. All of the vendors will have the same tools and technologies, he said. The difference will be on the staff they retain.

“They will all struggle with delivery as every new business would,” he said. “Any business that doubles struggles with delivery until they fix it or they don’t.”

Philip Mooney, D4 chief sales officer, said almost all law firms are considering whether they want to go to managed services as part of their larger discussions on reducing expenses.

Mr. Mooney said his company is growing to handle the additional work, but it also is mindful of firms’ concerns that it take on too much.

For Buchanan Ingersoll, the idea was to take the data on volume and expense and translate those into a cheaper way to provide services for its clients.

“I think we are seeing the beginning of the wave where firms are starting to move in this direction,” Mr. Claire said. “But they are defining their model in many different ways and I don’t think we have set models just yet.”


Gina Passarella can be contacted at 1-215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI. To read more articles like this, visit www.thelegalintelligencer.com.


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