These days, cash is king—and many law firms are looking to maximize revenue wherever they can. One recent case out of Minnesota shows how firms willing to take control of the discovery process can create a lucrative new revenue stream on the fly, eliminating third-party middlemen to convert what would typically be pass-through costs into billable work that contributes directly to the bottom line.
In a single matter, the two-attorney firm was able to bill an additional $60,000 in discovery services performed in-house—and, icing on the cake, to recover those hours directly from opposing, whose own discovery incompetence eventually ended in cost-shifting sanctions.
In-House Discovery: A Win-Win for Firms and Clients?
Since the last economic downturn in the late 2000s, law firms have increasingly faced mounting cost pressure from clients, declining realization rates, flat demand, more competition and an increasing appetite among capable corporate legal departments to take back much of the work they’d entrusted to outside counsel. Some have even argued—gulp—that there’s a “secular decline” in litigation.
And then the pandemic hit.
If you’re a law firm in 2020, you’re faced with a particularly thorny catch-22: how do you bill more hours to sustain a practice under siege on all sides and respond to clients’ intensifying cost-cutting measures?
Some firms, to great effect, are taking control of processes that have traditionally been cordoned off due to their complexity, cost, and risk. Chief among these is eDiscovery.
In theory, the value proposition for bringing discovery work in house is a straightforward one in which all sides win. By cutting out high-priced third-party vendors that have monopolized discovery due to its technical difficulty and attendant risks, firms can take on billable work they once vended out—and perform that work at a lower overall cost to the client.
But what about in reality? In order for the ROI calculus to work in both the firm and the client’s favor, the firm must have access to software that, beyond empowering attorneys and staff to do the work themselves, needs also to have a pricing model that:
- allows firms to predictably pass costs through to clients and
- creates opportunities for them to profit from services the software unlocks.
Typically, these are “flat-rate” models where there are few cost variables and few if any fees associated with what most vendors would consider services.
With rare exceptions, firms will capture billable hours for document review, but many are leaving money on the table when it comes to activities on either side of that work, such as data ingestion, culling, and early case assessment on the front end and the creation of productions on the back end. When a firm broadens the scope of its discovery services, and, consequently, achieves greater familiarity with client data, additional consultative opportunities may arise as well.
And while, in most cases, none of this work will create a windfall on its own, in aggregate and across many matters, it can yield thousands of dollars in firm profits each year by mobilizing under-utilized firm resources—not just attorneys with extra capacity, but paralegals and support staff as well.
The Minnesota matter is an instructive case study.
Case Study: How a Two-Attorney Firm Earned $60k in Discovery Work
Court documents related to an evidentiary dispute in the US District Court for the District of Minnesota show how the firm at issue, a Logikcull customer and prevailing party in a motion for sanctions, recovered nearly $60,000 in billable hours for less than a year of discovery work it performed itself in a single matter. Those hours represent pure profit—not software-related costs passed through to the client—and were ultimately ordered to be paid by the opposing party as a discovery sanction.
While the case at issue was no ordinary one, and, given the alleged antagonism by the opposing party, appeared to have required a more involved approach to discovery than would otherwise be necessary, the prevailing firm said—and the court agreed—the amount billed here was only for that which was essential to the matter.
“In reviewing these hours,... [we] removed the ‘typical’ discovery-related activities… and only focused on the actual fees and costs related to the manner in which discovery has been required of Plaintiffs and refused by Defendants herein,” a September 27 declaration of one of the plaintiff’s attorneys states.
According to that declaration, the two-attorney firm billed between $100 (support staff) and $500 (senior lawyers) for work that runs the gamut from “analysis and sorting of discovery documents,” for which it accrued $3,250 in fees, to “uploading of discovery documentation to Logikcull,” which tallied more than $8,000. Document review accounted for more than $30,000 in fees that were ultimately reimbursed. (Ironically, some of these fees went toward ferreting out opposing counsel’s production deficiencies, which arose from its inability to navigate its own discovery tools.)
If not for the firm’s hands-on approach to discovery in this particular case and willingness to handle activities traditionally outsourced to third parties, it would likely have forfeited many thousands of dollars to outside providers that, current market rates suggest, may have also resulted in higher overall costs to the firm’s client.
To be sure, this particular circumstance is not replicable in all cases, but it does represent a real-world example of how law firms can create “found” revenue simply by cutting out dispensable links in the discovery supply chain and embracing do-it-yourself practices. Moreover, given the increasing availability of consumption-based, flat-rate pricing where, similar to ride-sharing apps, firms only pay for discovery software on an as-needed basis, costs can be easily attributed and passed through to the end client. In essence, then, the software is free to the firm—not unlike leasing an apartment to rent it out at a daily premium on Airbnb.
For some well-positioned firms, bringing more of the discovery process in house will bolster profits per partner and catalyze resources once considered overhead. For others, right now, it may hold the keys to staying in business.