Establishing a Preferred Legal Services Provider Network
August 2003
Litigation management involves more than controlling
your attorney's per-hour fee. Thirty percent of legal fees involve ancillary
costs, such as court reporters, legal research, travel expenses, trial and jury
consultants, and reprographics. By turning your attention to firms providing
these services, you can realize significant cost reductions by negotiating lower
rates yourself instead of relying on your law firm (who has little incentive)
to do so.
by Michael
R. Boutot
International
Litigation Management Association (ILMA)
Last quarter, the focus of this section was on how to overhaul your outside
panel network. I shared 16-steps on how to successfully establish everything
from the concept to an entire preferred network of outside panel counsel. This
follow-up section is designed to focus on what we have termed “ancillary costs.”
While I conduct audits, training, and seminars across the country, I continuously
find carriers, self-insureds, and government entities that seem to be establishing
a greater grasp on their legal costs, but few can identify exactly where their
legal dollars are being spent. Undoubtedly the greatest opportunity to improve
efficiencies and maintain proper control on legal costs rests in ensuring that
you have the right defense firms representing your interests and the interests
of the client. But don’t lose sight of the fact that there are substantial ancillary
costs associated with litigated and legal cases.
Understanding the Numbers
I once heard it said “Figures don’t lie … but liars figure,” meaning that
you can easily make figures say what you want with the proper “manipulation.”
Studies reveal that last year over $300 billion was spent in the civil tort
arena. The question to be asked is just how was that money spent? Does that
include settlements? What about various attorney costs? Then with attorney costs,
what costs are included?
The key is to know the numbers. While it is important to know how much you
are spending in legal costs, it is as important to know just exactly how those dollars are being spent. With
the establishment of the American Bar Association’s Uniform Task Based Management
System (UTBMS) created in 1994, with the assistance of PriceWaterhouse and the
American Corporate Council Association (ACCA), tools are available to help determine
exactly where legal dollars are being spent.
This becomes critical considering 70 percent of legal costs go toward the
attorneys’ hourly rate and staff fees (paralegals, partners, etc.), yet 30 percent
is paid on ancillary costs. The following are some examples of where legal ancillary
costs go.
- Court reporter/deposition fees
- Expert witness fees
- Private investigations
- Record retrieval
- Reprographics (photocopy charges, etc.)
- Mediators and arbitrators
- Legal research
- Trial consultants
- Jury consultants
- Long-distance phone charges
- Travel expenses
- Document management
- Imaging
Under many litigation management procedures, there exist some guidelines
for ancillary costs, such as:
- Only 10 cents per page for photocopy
- Prior approval of legal research
- IRS rate for travel
- No long-distance telephone call reimbursement
- No fax charges
However, all too often there are no controls in place to track and ensure
that the best rates and services are obtained for such things as court reporting
and expert witnesses fees (which can account for over half of all ancillary
costs). It is important to understand that your ability to obtain lower national,
regional, or even local rates oftentimes might be greater than that of the law
firm.
Benchmarking
The key to determining where you might have the greatest exposure for additional
cost-containment opportunities is to conduct a benchmarking survey. Many providers
will offer this at no cost as an entrée for you to understand their service.
The way the benchmarking works is that these technology providers are able to
take prior historical invoices (invoices already paid) and convert them into
the UTBMS task codes mentioned above. They can also identify the various expenses
paid to determine where costs are greatest. Likewise, the report back can provide
hints as to how and where the invoice processing for these ancillary costs might
be improved.
Example: Court Reporting/Depositions
One perfect example of this is court reporting deposition invoices. In several
states, it is actually against public policy to provide discounted rates in
the area of court reporting costs. However, those statutes and regulations do
not impede the ability to establish guidelines and billing format.
Take a few moments and identify 10 court-reporting invoices. What you will
find, unless you already have a program in place, is that the deposition invoice
may simply indicate a charge, with no consistent itemization. Court reporters
primarily bill by the number of pages. The page range varies by type of deponent
(expert versus witness) and jurisdiction.
Let’s say the average per page cost in your area is $4 per page for an original
and one copy (the court reporting industry refers to that as an “0 & 1”). However,
when you get the invoice, it just says basically “services rendered $535.25.”
For those who have been in claims as long as I have, you can remember that is
exactly how attorneys use to bill us … at the close of a file, not itemized.
However, those days are long gone.
So, just how does benchmarking help in this area? The key is again to understand
the numbers. If you know that court reporting accounts for 20 percent or more
of your overall ancillary costs, does it not make sense to have a program in
place to track and monitor those expenses? In fact, there are no fewer than
six national court reporting service providers who provide such a service. One
such company is Spherion Deposition Services and another is Legalink.
In addition to providing national coverage, these organizations are equipped
to ensure their invoices are itemized to indicate the number of pages and the
cost per page. Thus, the court reporting invoice might look something like this:
| Deposition Cost |
525 pages @ $4.00 per page |
= $2,100.00 |
| Parking Costs |
50 miles @ .30 |
= $15.00 |
| Subpoena Fee |
|
= $25.00 |
| TOTAL |
|
= $2,140.00 |
Now, before you think that’s it, let me let you in on another secret. It
starts with a question: “What is a page?” Before you laugh, let me remind you
how when you entered kindergarten or the first grade how a “page” looked. It
had large lines and big spaces so you could learn to write. Remember that mindset.
Now think about your own desktop publishing and memo writing. If you are familiar
with font sizes, you know that a 10-point font is much smaller than a 24-point
font.
Now the secret! Assume you are told by one court-reporting company that they
would agree to a charge of $4 per page, while a second said $5 per page. Logically,
you might choose the cheaper at $4 per page. But what constitutes a page? The
National Court Reporters Association issues a guide that depositions should
be 25 lines per page and 50 characters per line. However, there are no federal
or local statutes that mandate such rule. Thus, what if you had the $4 per-page
service formatting its page at 18 lines per page and 36 characters per line?
Likewise, what if the $5 per-page service formatted at 25 lines and 50 characters
per line?
While I have not done the math and “crunched the numbers,” can you see how
both might attend a 6-hour deposition and the $5 court reporter (25 lines and
50 characters) has a 400-page transcript versus the $4 court reporter (18 lines
and 36 characters) has a 600-page transcript. The bottom line: the $5 per-page
at 400 pages totals $2,000 and the $4 per page at 600 pages totals $2,400. See
the difference the size of a page can make?
Back on Track: Identifying Regular Costs
The purpose of the above example is to show that often, we as an industry
have been so focused on controlling costs that we miss opportunities right under
our nose. While most will go through the efforts of establishing a preferred
counsel network as mentioned in last quarter’s article, few will take it to
the next level by creating a preferred legal services provider network, again,
a “Legal PPO,” if you would.
The intent here is not excluding the court reporters or any other provider
your defense firm chooses. However, it is about establishing guidelines and
protocols that take litigation management to newer heights. The key is looking
for ways to control 100 percent of your legal costs, not just 70 percent.
Bulk-Purchasing Power
Now then, just how does this work? Keep in mind the power of bulk purchasing.
If you go out and contact a service provider like Spherion or LegaLink, mentioned
above, and can express to them volume commitment in those areas where they are
able, you may be able to get better rates than your law firm can directly. After
all, what incentive does your firm have to get the best rates, especially if
they know you aren’t even monitoring those costs? Now take that to other areas:
such as mediators, legal research, demonstrative evidence, etc. (See the list
above.)
It is my contention that you can reduce your legal costs an additional 10
percent by establishing a network of legal services providers that goes well
beyond your preferred defense counsel network of attorneys. In fact, you can
incorporate your firm’s recommendations to ensure you are partnering with the
right providers.
Closing Comments
By establishing a preferred network of legal service providers, you are able
to “kill two birds with one stone” (for the animal rights activist, I really
don’t mean that … it is just one of those sayings). You are able to ensure you
are getting the best rates available as well as providing guidelines that are
to become part of their service.
Go back to the list that I indicated above in the section entitled “Understanding
the Numbers” and ask yourself if you know how much money you spend in each category.
Then ask yourself if you have a plan to provide uniformity for billing and handling.
Finally, ask if you have attempted to get “favored nation pricing” based on
volume. In all likelihood, you should be quick to identify this as an area of
opportunity for true cost-containment without impeding quality, and in fact,
probably improving quality.
In the next article I will feature some providers that have the ability and
desire to be part of a national preferred legal service provider network program.
The views, content, and opinions expressed herein are solely
those of Michael Boutot and are not necessarily those, nor intended to be those,
of Crawford & Company and/or the membership and/or board of the International
Litigation Management Association (ILMA).
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.