Six Major “Hidden” Cost Drivers in Discovery – Part I
What is it going to cost? This often is the #1 question for any e-discovery project. For review projects, alternative fee arrangements are rare, and budgets are typically just guidelines rather than hard caps. In this environment, the primary focus on overall costs often is hourly rates.
Let’s use two simple equations to show this logic.
First, the simple cost of a document review project using BigLaw attorneys looks like this:
Total cost = Attorney rate(s) x Attorney hours
Example = $500/hour x 1,000 hours = $500,000 total cost
The market response the higher cost is to substitute BigLaw hours with lower cost “first-pass” review hours. (For definitions of first-pass review and other terms, please see our People Primer.)
With that change, here is how the second equation works out:
Total cost = (BigLaw Rate x BigLaw Hours) + (First-Pass Review Rate x First-Pass Review Hours)
Example = ($500/hour x 700 hours) + ($45/hour x 300 hours) = $363,500
The idea here is that if you can substitute 300 hours at $500/hour with 300 hours at $45/hour by shifting those hours to first-pass non-BigLaw reviewers, then you have saved well over $100,000.
Were it only so easy. In our experience, the cost equation is not that simple, and often the projects with the greatest overall cost have the lowest hourly rates.
Why? Because the hour’s portion of the cost equation often has the biggest impact on the total cost of the project, not the hourly rate.
In our experience, there is more focus on the hourly rate than the number of hours.
Why is that?
Well, it is hard to get a comprehensive grasp on the number of hours each task will require along with the process inefficiencies that lead to more hours being spent on a matter. Doing so requires a very granular and expert understanding of the case, the team, and the scope. Most discovery processes don’t lend themselves to developing such an understanding and, therefore, the focus tends to be on rates and not hours.
Often the result is that most clients focus on the hourly rate, do their best to sanity check the total hour estimate provided by the lawyers, and hope for the best.
We think there is a better way and we want to empower you to get control over the hour’s portion of the cost equation. Better yet, you don’t need to be an e-discovery expert to get a handle on this part of the equation. Instead, it requires only (1) an understanding of the ways in which the discovery process can break down (2) how those breakdowns drive cost increases and (3) using that knowledge in putting together your discovery team—and keeping it accountable.
There are a number of ways in which the discovery process can break down. Through our work as discovery counsel, we have identified six non-hourly rate variables that materially impact total cost, usually far more than the hourly rate itself.
These hidden costs arise from: (1) substantive errors; (2) duplication of effort; (3) lack of strategic planning; (4) inefficient workflow; (5) staff turnover; and (6) failure to properly substitute.
Let’s look at each in turn. The following discussion is meant to simply diagnose the problem—in future posts, we will work through solutions and ways you can mitigate these hidden costs.
We will cover the first three hidden costs in Part I and the remaining three in Part II.
Hidden Cost Driver No. 1 – Errors
Here is how errors impact the cost equation:
Total cost = (BigLaw Rate x BigLaw Hours) + (First-Pass Review Rate x First-Pass Review Hours) + ((Remedial Hours x First-Pass Reviewer Rate) + (Remedial Hours x BigLaw Rate))
The bolded portion of the cost equation sets out the added price of error-related costs.
An error in the document review process can take a number of different forms. Here are some of the most basic errors we see:
- Documents coded incorrectly (i.e., a document marked responsive that is actually not responsive);
- Documents coded inconsistently (i.e., one email thread marked responsive while a nearly identical one is marked non-responsive);
- Documents protected by attorney-client privilege that are not coded for privilege;
- Important documents affecting your case narrative that reviewers failed to identify during the first-pass review process.
There are also errors in strategic judgment, which have different implications and costs and which we will discuss in a later post.
At a very basic level, coding errors like these increase costs in at least three ways. First, if you have an error, you need to fix it. It takes extra time to fix it. Extra time in a billable hour arrangement is extra cost.
Which of the following two examples costs less?
Scenario A: Person at $40/hour spends three hours going through 200 documents. That person makes significant mistakes and errors that requires one hour of their project manager’s time (at $200/hour) to fix. To get those 200 documents reviewed costs $120 + $200 = $320. (And if instead of a project manager a BigLaw associate has to fix the problems at $400/hour then that cost has ballooned to $520.)
Scenario B: Discovery counsel at $180/hour spends one hour going through the 200 documents. Because of the workflow process discovery counsel implemented these 200 documents require no re-work. Total cost? $180.
Second, costs increase when a mistake isn’t caught.
If the mistake is a substantive error—like mistakenly producing a privileged document—the cost becomes far, far more than just a few hundred dollars.
Third, costs increase when reviewers miss information that could help you win your case. Reviewers play an incredibly important role, as they often are the only attorneys to lay eyes on the many documents gathered during the process. Whether these eyes recognize a document for its strategic significance can be critical to the case.
Most case-critical documents are not of the “smoking gun” variety—i.e., the email or document that would jump out to even a first-year law student as important. Rather, most are documents that require a thorough knowledge of the case, the context of the defenses, claims, and factual allegations, along with the big picture strategic litigation goals. Without this type of knowledge, many important documents can be missed.
Obviously, when you are dealing with a very small subset of documents—1,000 or fewer—it is much easier to catch mistakes because the total amount of data is so small. But a typical discovery review involves tens of thousands, if not hundreds of thousands, of documents. Larger data sets increase the likelihood of a critical mistake being made.
Given the high cost of errors, thoughtfully constructing teams and workflows can drastically reduce errors and therefore costs, while substantially improving your return on investment.
Hidden Cost Driver No. 2 – Duplication
Here is how duplication issues impact the cost equation:
Total cost = (BigLaw Rate x ((BigLaw Hours with No First-Pass Reviewers) – (.70 x First-Pass Review Hours)) + (First-Pass Review Rate x First-Pass Review Hours)
From where we sit, one of the two greatest hidden costs is associated with the duplication of efforts. The bolded text shows you the impact of duplication of effort to the cost equation—duplication means that you are not subbing out one hour of BigLaw time for lower-cost time, but only some portion of that time, as the two teams wind up performing some of the same work. In this example, we project that there is .30 hours of every hour that is duplicated; that number can vary depending on the case, workflows, and teams.
There are many different places where teams can duplicate efforts in the discovery process. One place where you can quantify duplication is by how many different times someone needs to “touch” a document before it is ready to be produced or ready to use in the case.
Compare two examples, one in which the workflow is sub-optimal and the document needs to be “touched” nearly 10 times at various points:
Scenario A: Set of 200 documents is collected and needs to be reviewed. Here is a common lifecycle of one document and the number of different “touches” it gets: The initial reviewer from the first-pass review team reviews the document for the first time for coding (1). Then the first-pass reviewer reviews it again for clean-up purposes (2). The first-pass team’s project manager reviews the document quickly looking for errors (3). The document is handed off by the first-pass review team to the BigLaw team for a “second pass” review where it is reviewed for production purposes (4). The BigLaw attorney identifies that the document needs to be re-coded because it was incorrectly coded the first time (5). The document is reviewed by a different attorney as part of research to locate documents for timeline purposes (6). The document is reviewed for deposition prep (7). The document is given to another attorney to defend the deposition or otherwise use (8). This common scenario reveals eight distinct “touches,” each one costing the client additional money. On the extreme end, we have seen cases where one document has been touched over 20 times!
Scenario B: The same set of documents is collected and needs to be reviewed. Experienced discovery counsel goes through the documents as part of their review and codes each one for substance (1). Because of the workflow and planning on the front end, the documents need only be quality controlled once before production (2). The documents are segregated into deposition prep or as timeline documents and sorted for each deposition (3).
Since each “touch” costs money, Scenario B is a much better result for the client. If you can eliminate the unnecessary document “touches” you eliminate a hidden cost.
This is just one example. We will talk about more areas of duplication in further knowledge base posts.
Hidden Cost Driver No. 3 – Lack of Strategic Planning
Lack of strategic planning also impacts the cost equation:
Total cost = (BigLaw Rate x (BigLaw Hours for Necessary Work + BigLaw Hours for Unnecessary Work)) + (First Pass Review Rate x (First Pass Review Hours for Necessary Work + (First Pass Review for Unnecessary Work))
Like in most things, planning matters. It can save time and effort. Discovery is no different, and the lack of planning in the e-discovery context can drastically increase costs. The bolded part in the cost equation reflects unnecessary work that is done for lack of planning.
Good planning covers many different topics and anticipates potential problems and cost drivers before the work begins.
For example, a good plan will take into consideration ways that a data set can be defensively limited before review (a process known as early case assessment). Here is an example:
Scenario A: You collect data from a number of custodians. After running search terms across the data, 150,000 potentially “responsive” documents are left. The 150,000 documents are parceled out to various reviewers and they begin the review linearly, i.e., sequentially in the order collected.
Scenario B: Same 150,000 documents as before. Instead of immediately jumping in, the discovery team analyzes the data for a number of case-specific and strategic items and determines that there are 40,000 documents that brought a “hit” on search terms but are false positives. The team determines those documents do not need to be reviewed and use their software technology to pull those 40,000 documents out of the data stack. The team then conducts a linear review on the remaining 110,000 documents but saves significant money by eliminating the 40,000.
There are lots of ways that strategic planning (and lack of it) can impact your costs beyond just this type of early case assessment.
We will get into many of them down the road as the knowledge base progresses!
To lower e-discovery costs you need to think about more than just about the hourly rate. While a “low” hourly rate can be appealing on the surface, focusing on the hidden costs can empower you to ask the right questions as you vet your discovery teams and providers, lower your bill, and improve the odds of a successful case outcome for your company.
In Part II we will cover the three remaining hidden costs, including what we find to consistently be the #1 cost driver in the discovery process. If you have any questions about this post or any in the series, or if we can help with an upcoming review or discovery project, please contact us.