The E-Discovery Battle between Vendors and Firms Has Arrived?
Economic hardship has forced general counsels to cut costs. Most large law firms have, in turn, laid-off lawyers and staff and acquiesced to demands for alternative fee arrangements. Smart firms are also trying to differentiate themselves. For example, many now aim to become end-to-end e-discovery providers.
UPS Cuts Costs With E-Discovery Counsel (Corporate Counsel, 11 Nov 2009), describes King & Spalding’s “cradle-to-grave solution” for e-discovery at UPS. Separately, off-the-record reports suggest that many law firms want to provide an integrated, one-stop e-discovery solution for clients. This is a big change; previously, most firms were content merely to counsel clients on the law, rely on vendors to do the work, and supervise the overall process.
Firms likely will find it a challenge to be, on their own, the “go to party for complete e-discovery”. They will need to partner with one or more vendors. In January 2007 I wrote Coming E-Discovery Battle between Vendors and Firms. I noted that “law firms and EDD vendors may compete for e-discovery consulting business.” Now I can say the same about all of EDD. My opinion then re consulting applies equally to the rest of the EDRM model:
“Clients should consider carefully who offers the better set of skills and experiences. BigLaw brands may offer comfort, but some vendors have hired experienced lawyers and may offer the better bundle of skills and experiences.”
Law firms have the advantage in counseling clients on legal strategy and e-discovery issues (as I observed in my May 2007 white paper 4 Ways an eDiscovery Attorney Can Make Your Firm More Successful). When it comes to providing integrated e-discovery service, however, law firms have several disadvantages relative to vendors:
- Art vs. Industry. BigLaw has long asserted that “everything we do is art” and cannot be standardized. That mentality works against the industrial strength processes (e.g., rigorous metrics and QC) and disciplined project management that high-quality and cost-effective e-discovery service requires.
- Sub-scale. Most law firms simply do not have the necessary scale to flex up and down to manage the peaks and troughs of e-discovery processing / hosting and document review. Large vendors can better manage the fluctuations because they aggregate demand across multiple firms and clients. Scale also limits most firms’ ability to stay on the leading edge of EDD technology by developing proprietary technology and/or evaluating and running multiple third-party platforms.
- Declining Unit Pricing. E-discovery and document review is moving to unit pricing that is declining over time. Vendors don’t like falling prices but have mechanisms to cope. BigLaw partners, in contrast, have enough trouble moving beyond the billable hour much less lowering fees. Law firm DNA makes it hard to deal with the current EDD trends.
- Scarce Investment Capital. Exploding data volumes require ever more servers and software licenses. That means capital. Law firm investment has typically meant “any outlay that cannot be billed to to a client in the same month.” Law firms have never been well-capitalized and, in the current economic environment, loans are difficult to obtain and costly. So it’s not clear how firms will fund growing their EDD infrastructure and keeping it state of the art. Well-managed and well-capitalized vendors are accustomed to on-going investment to keep and grow business.
Nonetheless, I think that law firms will continue to play a critical role in managing clients’ EDD requirements. Their best path is to focus on their core legal strength and their deep relationship with clients. For the heavy lifting of e-discovery and document review, most firms will find it easiest and best to partner with vendors.
[I adapted this post from a similar one I wrote at Integreon.com, posted earlier this week.]
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