Can Good e-Discovery Tools Really Reduce Your Legal Fees?
Or will they just instill over-confidence and end up costing you millions when you lose the case and have to pay a huge award for damages?
It's a good question, and the first one I asked after reading this article in Integrated Solutions Magazine on how e-Discovery is not just for lawyers anymore. The article, which points out that Gartner's recent report on E-Discovery: Project Planning and Budgeting 2008-2011 found that one gigabyte of data can result in $18,750 in legal review costs, makes a good point when it notes that outside e-Discovery can be very expensive. It also makes a good point when it notes that you'll likely have to pay considerable legal fees regardless of the outcome of the case. But what it doesn't ask is what happens if doing it yourself fails to turn up that one piece of evidence that could win the case for you? Even if you had to spend an extra 100K, that's still a lot better than losing 1M, 5M, or even 10M!
While I loathe paying extravagant legal fees as much as the next guy for something I could do myself for much less than a big-name law firm will charge me, there's a difference between writing your own contracts and trying to defend yourself in a trial where millions are on the line. And that's usually where e-Discovery comes into play.
What I believe you should take away from this article is that modern e-Discovery tools are much more powerful, and much cheaper, than they were years ago and that it doesn't cost your law-firm $200 an hour for legal review when these tools allow para-legals, who make less than $30 an hour, to do the initial culling which produces documents that are then reviewed by junior associates, who make less than $50 an hour. (And I'm being generous with both numbers, especially considering the number of hours new associates are expected to pitch in. There's a reason some people think law firms keep the cot industry in business.)
Then, your procurement department should be using this knowledge to aggressively negotiating the amount you pay for each service performed by the law-firm. Force them to break down services on an itemized bill and insure that you don't pay more than, say, a blended rate of $65 to $75 per hour for legal review (with the exact amount dependent upon your local market), just like you don't pay 20c a page for copies or $500 an hour for basic services (like filings) that an associate can do for (significantly) less than $150. It might still cost a bit more than doing it yourself, but considering the cost of the risk that you will be mitigating, I think it's worth it.
You make an interesting point. At the Iasta Consulting Group, we have seen firsthand the impact on legal fees that the various marketplace tools have. We counsel our clients to make a distinction between "Direct eDiscovery Costs" - the actual software/technology and professional services costs - and "Indirect eDiscovery Costs" - which are the other costs that are impacted by the selection of the former but are not necessarily manifest at the outset. Legal Fees sit right at the top of that list.
One simple example of this hidden exposure is the type of document review technology employed. Conceptual review and document clustering (utilizing metadata) technologies enable counsel to more quickly and efficiently review documents as part of discovery - say to the tune of 150+ documents reviewed per hour - as opposed to linear .PDF and .TIFF based review tools which typically max out around 25 documents per hour.
What is the impact of this delta? Well, if the legal matter at hand requires the review of, lets say 500K documents (which is not at all unusual these days given that most Outlook PSTs alone contain north of 5K emails),it would require approximately 3,300 hours of associate/paralegal review if you are using a conceptual review tool versus 20,000 hours using a linear review tool.
Regardless of what the hourly rate is, that is still a huge delta - and unfortunately one that is usually not recognized until after the law firm's invoice shows up.
More interesting perhaps is the fact that most corporate law departments continue to allow outside counsel to influence, if not make, the buy decisions. (I suppose that is an entirely different topic for discussion.)
While the market has matured significantly since we first began sourcing eDiscovery (ie $4,000 per GB for processing in 2003 vs. $400-$800 per GB today), what has not changed is the strategic and financial risk associated with technology selection.
I think your point is spot-on.
Bottom line, procurement professionals should analyze both direct and indirect costs when supporting the legal function on vendor/technology selection. At the very least, that exercise will demonstrate to Legal that Procurement understands the inherent risks associated with this category of spend and perhaps will contribute to a more effective partnering between the two functions.