publication of the International Legal Technology Association
Issue link: https://epubs.iltanet.org/i/395170
One firm currently considering redefining its service delivery model is Buchanan Ingersoll & Rooney PC, a firm with an impeccable reputation and more than 450 attorneys and government relations professionals practicing in 15 U.S. offices. Buchanan will modify the level of manned services provided onsite and utilize a vendor's overflow facilities to provide reprographics and litigation support when appropriate. Historically, firms have desired keeping this type of work onsite in order to chargeback and recover the costs to clients, but increasing pushback on soft costs and the acceptance of hard costs is changing this behavior. Nolan Kurtz, COO of Buchanan, said, "We are very interested in migrating our locations to a near-site solution with our current outsourcing vendor. It will potentially decrease our fixed costs and could provide for a cleaner recovery of the costs. Obviously, we have to meet or exceed current service levels to our end- users, but we believe we can do so under this model." FIX IT, DON'T GET RID OF IT Another way the hard cost model is gaining traction in the legal marketplace is where all of a firm's costs for onsite support services are structured as hard costs and passed directly through to the client. Under the traditional model that most firms utilize, support services costs (equipment leases, supplies, paper, labor, outsourcing costs, etc.) are assigned a "price" for copies, prints, scans, etc. to recover these costs, which usually include some overhead. The firm then captures these charges through their cost recovery system and charges them back to the appropriate clients. What is typically happening is billing attorneys are writing off the soft costs due to client pressure or discomfort with the "price." These factors result in the 40% net realization we are seeing these days. However, when billing attorneys and clients see an invoice from a third party (hard cost), they are billed and paid at a much higher percentage than an internal (soft cost) charge, typically in the 90% net realization range. Below is a simplified example of the difference between the typical soft cost scenario and a hard cost model. ILTA WHITE PAPER: OCTOBER 2014 WWW.ILTANET.ORG 46 COST RECOVERY STRATEGIES THAT WORK ITEM PRICE DETERMINED BY FIRM VOLUME BILLABLE % BILLABLE COST RECOVERY REVENUE WRITE OFFS (INTERNAL AND EXTERNAL) NET REALIZATION Copies $0.15 100,000 70% $10,500 28% $7,576.80 Prints $0.15 100,000 70% $10,500 28% $7,576.80 Scans $0.15 100,000 70% $10,500 28% $7,576.80 TOTAL RECOVERY $22,730.40 TYPICAL SOFT COST SCENARIO ITEM ACTUAL COST SUPPORTED BY VENDOR INVOICE VOLUME BILLABLE % BILLABLE REVENUE WRITE OFFS (INTERNAL AND EXTERNAL) NET REALIZATION Copies $0.12 100,000 70% $8,400 5% $7,980.00 Prints $0.12 100,000 70% $8,400 5% $7,980.00 Scans $0.12 100,000 70% $8,400 5% $7,980.00 TOTAL RECOVERY $23,940.00 SAMPLE HARD COST MODEL