Six Major “Hidden” Cost Drivers in Discovery – Part II
We have identified six different hidden costs in the e-discovery process: (1) substantive errors, (2) duplication of effort, (3) lack of strategic planning, (4) inefficient work flow, (5) staff turnover, and (6) failure to properly substitute. In our last post we set out the e-discovery “cost equation” along with the first three e-discovery cost drivers—costs arising from common mistakes that increase the number of hours it takes to complete a project. In Part II, we will discuss the final three, and identify the greatest “hidden” cost of all.
Hidden Cost Driver No. 4 – Inefficient Work Flow
Here is how an inefficient workflow impacts the cost equation:
Total cost = (BigLaw Rate x BigLaw hours) + (First-Pass Review Rate x ((First-Pass Review Hours) x 1.x))
The “1.x” is the cost-increasing impact of an inefficient “work flow” on the process. Work flow is a frequently mentioned “buzz word” in the discovery space. At its core, it is simply the order or process by which tasks are completed. In our context, it is the “who, what, how, and in what order” of the e-discovery process.
To think about the impact of work flow, consider the process involved in ordering dinner at a restaurant. You order from the waiter at the table, a chef prepares the meal, the waiter or others bring the meal to you, and a third person (or perhaps the waiter) busses the table when you are done.
Changing the who, what, how, and order can make any process significantly less efficient. Say we change the “who” performs “what” part of the process above: If you had the waiter prepare the meal, you might end up with a really bad meal. Or if the chef takes your order and makes the meal, the entire process would slow down. Changing the order of things can also make things work less effectively—imagine the meal was prepared before you ordered it? Or if you changed the “how”—instead of having a commercial kitchen at her disposal, the chef had only access to an open fire?
These examples are illustrative—they show how a bad process can make things less efficient and more costly. And they are also intuitive, i.e., we know immediately if the ideal work flow is broken.
No surprise, but work flow matters in the discovery context just as it does in the example above. However, in the discovery context it is more difficult to intuit what is a “good” work flow, especially in complex litigation. While you may know who is on your discovery team, knowing what tasks are completed by whom, and in what order, is often unclear. That’s where the inefficiency lies.
Indeed, discovery work flow has multiple decision points, increasing the likelihood of an inefficient process. Any given project may involve tens—even hundreds—of thousands of documents, dozens of attorneys (across three or more teams), and hundreds of decisions. A poorly chosen work flow can drastically increase the cost of the project.
To illustrate the problem, here are some scenarios:
Scenario A: First pass reviewers collectively go through 50,000 documents in a given week. They pool their questions for the lead counsel and they submit the questions at the end of that week. They get answers to those questions by the end of the second week, after they have reviewed another 50,0000 documents for a total of 100,000 documents. It turns out that the answers reflect a misunderstanding of the coding protocol and a number of documents were coded incorrectly. Fixing those documents requires 50 hours to re-work a significant portion of the 100,000 documents.
Scenario B: First pass reviewers go through the same 50,000 documents and utilize a work flow whereby questions are collected, screened, and submitted to lead counsel by the end of each work day. Lead counsel gives contemporaneous answers to the questions. The feedback indicates the same misunderstanding. However, because the feedback was contemporaneous to the work being performed, only a small portion of a day’s worth of work, say, a small portion of the 10,000 documents reviewed in a day, need some re-working, requiring just five hours of time. Moreover, the guidance immediately helps the team to avoid these same issues going forward.
In Scenario A, the work flow design created a substantial delay in getting answers to the reviewers, creating issues and increasing costs. Just a slight difference in work flow design, like Scenario B, can mean big savings and better results.
Hidden Cost Driver No. 5 – Turnover
Here is how staffing turnover impacts the cost equation:
Total cost = (BigLaw Rate x BigLaw Hours) + (First-Pass Review Rate x ((First-Pass Review Hours) + (Ramp Up Hours For Initial Reviewers) + (Ramp Up Hours For Replacement Reviewers))
What we define as “institutional knowledge” is a whole basket of items that build up over the course of a case: an intimate knowledge of the various players, the timeline, the claims, and the various factual circumstances of a dispute or matter. It also includes a knowledge of the kinds of documents that are responsive, privileged, or “hot,” how certain gray areas or questions are resolved, and any number of the dozens (if not hundreds) of little lessons learned over the course of a particular case.
The institutional knowledge of a case is extremely valuable and losing it is costly in a variety of ways.
Here is a common example that includes several illustrations demonstrating how turnover on the team increases costs on a project:
Scenario A: 25 reviewers from a staffing agency get up to speed on a review that will last four months. Only three of these reviewers have ever worked together before; the rest are all new teammates from the agency. It takes these 25 reviewers around 10 hours each to really learn and internalize all of the main players in the case. After one month these reviewers have asked, and had answered, a number of questions regarding how to treat particular documents, learned the rhythm of the business and can locate “hidden” privileged documents (i.e., documents that do not mention the name of an attorney or include “trigger” language like the phrase “attorney-client privilege,” but surrounding context reveals that an attorney provided input on them). Around week three they are comfortable enough to operate at peak speed and efficiency.
After one month, five reviewers leave for new jobs or move on to different, higher-paying projects, and after two months, a total of 10 have left. Of the reviewers who left, three reviewed documents early on that seemed unimportant at the time but later, after they left, new developments in the case made it apparent that those documents have a new-found relevance.
In each case, the reviewers who leave are promptly replaced. A total of 10 new reviewers are added to the team over the course of the project. Those 10 reviewers each need the same amount of time to ramp up to the case and internalize the main players and timeline. That’s 100 hours (10 x 10) of additional ramp-up time cost. They also need to learn and master the previous coding decisions and protocols that were resolved or clarified before they started on the project. And they need time to get comfortable with the review and the decisions, meaning they operate at a slower speed for their first 2-3 weeks on the project. On top of all that, the new reviewers don’t appreciate the “hidden” privilege document issue until they are well into the review, meaning a few of those critical documents slip past. In addition, because no one went back over the documents reviewed by the reviewers who left, those earlier reviewed documents that would now be deemed relevant are missed.
Now let’s take a look at a different scenario:
Scenario B: Seven reviewers who have worked together as a team before and understand each other’s strengths, backgrounds, and how each communicates begin the same review project. They have the same four months to complete it. They take the same amount of time to ramp up on the case and learn the coding protocols as in Scenario A. But, all seven reviewers remain on the case until the end. They gain optimal speed and efficiency by week 3 and continue that pace and efficiency through the end of the matter. In month three, when new information in the case sheds new light on documents reviewed in the first month, these attorneys immediately recognize the importance of those documents, remember enough of what they have previously seen to easily go back and identify them, and adjust the coding to reflect the new information. Most importantly, no hidden privilege issues slip past this team. Because they have worked together before, and know each other’s strengths, experience levels, and how to communicate together, a team member with a question on privilege knows exactly what and whom to ask in order to better understand the specific nuances of privilege on this particular review.
Comparing the scenarios, let’s count the ways that turnover impacts the review:
- First, and most obviously, there is the hourly cost for the replacement time for the new reviewers to ramp up. In the above example, that means 100 additional hours of time. But, the additional cost is amplified because of the lost efficiency and speed. The replacement reviewers need three weeks to get to peak reviewing efficiency, meaning lost efficiency and more cost for their first three weeks on the project.
- Second, the loss of institutional knowledge increases costs. The original reviewers built up knowledge of the case, the players, documents, and the arguments. When they leave, that knowledge leaves.
- Third, and relatedly, turnover means that hidden issues that might only be caught in context of the entire review are missed.
Fourth, there is a loss of efficiency from introducing any new people to any team. No matter the context, it takes time to learn how people communicate, what they are effective at doing, where their weak spots are, and how best to work together.
In Scenario B, the value of a seasoned team that has worked together is clear—they are a far more effective team from their previous experience working together on other cases than people who never have worked together before.
Hidden Cost Driver No. 6 – Failure to Substitute
Here is how the failure to substitute impacts the cost equation:
Total cost = (BigLaw Rate x Necessary BigLaw Hours + x.y) + (First-Pass Review Rate x First-Pass Review Hours)
In the above, “x.y” represents the costs of failure to substitute. For our purposes, there is work you absolutely want your lead counsel to handle. Some such tasks obvious—picking a jury, arguing at certain pretrial hearings, or defending the 30(b)(6) deposition for example. But there are many tasks that do not necessarily need to be handled by the lead counsel. In our experience, many tasks that do not need to be handled by BigLaw attorneys are done so by default because no one is paying attention to what work belongs where. Finding these hours, and replacing them with a competent but far less expensive alternative, will lead to some of the biggest cost savings on any discovery project.
To be clear—we think BigLaw attorneys are great. We all used to work in BigLaw and have the utmost respect for the expertise, knowledge, experience, and judgment that most BigLaw attorneys bring to the table. And we understand the importance to the client of having this caliber of attorney involved on a high stakes matter.
The above said, the reality is this: BigLaw is expensive. An average associate billable rate in a major market can quickly exceed $500/hour. (Side note: learn how firms like ours are using geographic arbitrage to lower costs.) To be sure, the market has already started the process of substituting these hours, moving first-pass review work away from BigLaw to managed review shops or discovery counsel.
And guess what? This move is often welcomed by the BigLaw team.
Discovery is complex, gritty, and often requires the undivided focus of the attorneys to do it well. In our experience, most BigLaw attorneys leading discovery are pulled in many different directions and most simply do not have the undistracted time necessary to focus exclusively on discovery. They need to work on briefs, prepare for oral argument, interview witnesses or custodians, and work through the other details of the case, i.e., the highest and best use of their time and talents that justifies the BigLaw rates their clients pay. This is where help from expert discovery counsel—help that is complementary to lead counsel’s work and frees them up to handle the other critical parts of the case—is so often welcomed by lead counsel (and their clients).
Let’s look at some examples:
Scenario A: a 100,000 document set, reviewed by first pass-reviewers at $40/hour to get down to 30,000 documents. To keep it simple, we’ll assume no quality control or project management time and a review speed of 70 documents/hour. Neither is realistic but will keep the example simple. The first-pass review cost is $57,000. BigLaw attorneys then go through the smaller document set for a “second-pass review.” We’ll assume the same 70 documents/hour and $400/hour. Second pass review costs $171,000, for a total cost of $228,000.
Scenario B: a 100,000 document set, reviewed by experienced discovery counsel who handles first and second-pass review together in one review. At 200 documents/hour and at $180/hour (our experience), the review costs $90,000. The product of the review is just 2,000 documents that are key to the case for the BigLaw attorneys. Their review cost of this very small subset is around $20,000. Total cost = $110,000.
The cost savings from proper substitution can be enormous.
We don’t advocate replacing BigLaw counsel on your case, just smartly identifying non-necessary hours and substituting those hours for hours of attorneys on a different team but who have the same BigLaw background and competence but with far lower billable rates. Do this and you will realize the biggest e-discovery cost savings of all.
To lower discovery costs you need to think more than just about the hourly rate. Focusing on the six hidden costs can empower you to ask the right questions as you vet your teams and providers, leading to lower bills and much a higher return on your investment, as measured by case outcomes.
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 via email@example.com.