Reading with interest 3 Geeks and a Law Blog’s Sorry Westlaw and Lexis – The Days of Passing Charges to Clients Are Numbered.
Historically, law firms have passed along all charges to clients, whether it was for a photocopy, a fax (sent or received), mileage, phone calls, and the grand-daddy of them all: online legal research.
While firms grapple with outrageous billable hour rates, the changes to the business model of the American law firm, and the never-ending debate on the “death of the billable hour,” the relationship between the law firms, the clients and the legal vendors must evolve as well.
Greg Lambert is correct in his assessment that in the in the age of “alternative fee arrangements” and “cost sharing” the practice of passing along charges is being challenged by clients.
Alternative fee agreements and the general move away from the generic hourly-billing rate will mean that firms will need to have a different negotiating strategy with the online legal research vendor. No longer will online research be seen as a pass-through cost to the client. Because the client will not be paying the attorney by the hour, they will not buy the idea that online charges are saving them money because it saves the attorney time. Clients will say that firms will need to bear the burden of the online research because, if it truly saves them time, then that means they should be able to spend less time on the client’s matter, thus the savings is really a benefit to the firm.
For the vendors, the fact that firms are seriously considering changing the methods of how they generate revenue means that vendors have to reevaluate how they negotiate the next contract. As clients bear less and less of the cost of online research, vendors cannot come to the negotiating table with the underlying idea that their service saves either the firm or the firm’s clients money. Those 30% profit margins are not sustainable as alternative fees become a larger percentage of how law firms generate revenue. Firms will finally come to the negotiating table willing to cut services, and demand that the built in annual increases end. The days of online legal research contracts based on the idea that the costs will be passed along to a third party are numbered. It is going to be interesting to see how it all unfolds.