IN THIS ISSUE:

Three people sit in a well-designed conference room that overlooks the city from the 40th floor of a prestigious building. They finish reviewing the charts and graphs that have been displayed on the room's built-in screen, and turn to each other. "So, that's it," states the director of information resources as she finishes her report on the firm's cost recovery of online resources. "Our recovery is 60 percent of cost after subtracting our own use of the system, discounts we provide to clients, and write-offs the billing partners have made. That's up from 55 percent a year ago."

The executive director turns to the operations partner with a pleased look, which disappears as the partner says, "You know, clients are starting to tell us they don't want to pay anything for these services. Maybe we should just eat the cost. My cousin's firm quit charging for online research a year ago and the response from clients has been good. What would that cost us?" The IR director reviews her notes and hesitantly says, "The cost to the firm would be $1 million." Hearing the number, the partner quickly replies, "Oh! I guess we will continue the recovery process. Let's go for 70 percent this year," he says as he gathers up his papers and leaves the room.

This conversation plays out in law firms year after year. Some have decided to stop charging clients for these expenses but they are a very small minority—to be exact, 7 percent in 2006, which dwindled to 3 percent in 2007, according to Law.com's Law Librarian Survey result for the survey conducted in 2008. While many firms debate whether to charge for these expenses, 97 percent of firms are billing clients for some or all of the expenses they can identify.

If this is the case, why do the discussions continue? Generally it's because law firms and their clients don't have a shared understanding of cost recovery for these resources. The American Bar Association's 2008 Legal Technology Survey Report states that 17 percent of lawyers in all firm sizes do not understand cost recovery of online research. That may seem like a small number, but, depending on the contracts the firms have in place and how much research is done, that 17 percent could be significant.

The ABA survey goes on to report that in the larger firms, the number of lawyers who don't understand cost recovery is higher than in their smaller counterparts. The percentages by size of firm represented in the chart below demonstrates this point. If you look at the firm size of 100-plus lawyers and the 37 percent of those lawyers who don't understand how their firm disburses these expenses, and then consider the cost of the contracts they have with the online legal research vendors, the potential loss in cost recovery becomes even more significant.

What can innovative firms do to reduce the confusion and end the discussion? The most successful approach is two-pronged.

Making Their Cost Recovery Process Transparent for Both Clients and Themselves

For many clients, the lack of communication regarding online resource expense leaves them wondering if they are being charged fairly for the expense. They also see invoices where the cost of the service is significantly higher than on other invoices, leaving them distrustful of online research expenses on any invoice. Many more are stymied by these charges because the charges weren't laid out in their engagement letters.

At the same time, law firm attorneys don't like to talk about online research expenses because they have never been asked to be responsible for the task of delivering the message and most do not understand how the recovery of these resources work at their firm. In fact, they tend to brush off cost recovery of online resources because, taken individually, each charge seems insignificant. Unless their management shares the total costs, they think little of writing off the expense before they send the client's invoice or when the client questions the amount charged.

To make the cost recovery process for online research transparent for their clients and themselves, firms should

• create a written policy outlining what expenses are charged to the client and a statement that includes the value of online research, write-offs, discounts, etc. The policy should also include when and how the firm will charge through the expenses.
• outline or refer to the policy in engagement letters.
• create written procedures that outline the cost recovery processes.
• prep billing partners to provide the best information in discussions with clients about the policy.
• require training for lawyers and staff who are asked to respond to client questions regarding cost recovery of online research.

Doing What They Can to Ensure the Expenses Included in Client Invoices Reflect Cost-Effective Online Research

No matter how one views online legal research, it can be an expensive proposition. If firms want to recover the costs, they need to take steps to make sure that the research that is done is both cost-efficient and effective. This means that the researchers need to be well trained. While new associates learn about Westlaw® and LexisNexis in law school, they arrive at the firm with little knowledge about how legal research works in the real world.

Once at the firm, these new lawyers need to be trained to approach research in a different manner than they used in school. Many firms already

• use usage reports to help new researchers understand the costs associated with online research.
• use reports (external and internal) to determine if lawyers need additional training on the resources.
• approach individual researchers to suggest how they can improve their results or that they may want to meet with a trainer to learn more about a specific type of research technique.
• use one of the cost recovery tools (LookUp Precision (formerly ERM or WRP), Onelog, or Research Monitor) to track use of these systems and the effectiveness of the search queries constructed by researchers.

Additional steps that firms may not be taking but should consider include the following:

• Require researchers to attend update training for billable online research services
• Require update training for other non-billable services to reduce the billable time spent doing research
• Use a blog to assist researchers in staying updated on online resources or a wiki to help each other stay updated or even share best practices in research

Recovering costs of online legal research is much more complex than recovering the costs for photocopies, phone calls, etc. The complexity of this process creates misunderstandings between client and firm. As firms review where they are with their cost recovery program, they should also review what the costs are to initiate and manage the program. It may be more expensive to recover the costs.

If a firm considers that the decision to not recover the expense of online services will have a substantial and negative effect on its bottom line, then it is in the best interest of the firm to improve its process. This includes making the cost recovery process transparent for clients and the firm and taking steps to ensure that researchers have the skills necessary to keep expenses to a minimum.

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