According to a recent management consulting firm survey, “cost control” is now the biggest concern of Chief Legal Officers (CLOs), beating out “compliance” by more than two to one. To curb costs, nearly half of all CLOs participating in the survey say they plan to expand their in-house legal departments in the next year. Furthering the insourcing movement, more than a quarter of them also plan to decrease their use of outside counsel.
Is this a sign of the downward economy or simply symptomatic of a much larger trend? Perhaps it’s a little of both.
Litigation has always held a reputation for being one of the most unpredictable and costly line items on the budget. So, what’s changed now to accelerate this movement? While certainly not acting in isolation, the increase in discovery requests and the corresponding volume of electronic data loom large as the primary culprits behind rising litigation costs.
According to the Federal Judiciary, pre-trial discovery expenses alone now represent 50 percent of litigation costs in an average case. In situations where discovery is actively used, it could represent as much as 90 percent of litigation costs, approaching and perhaps exceeding $1 million on a single case.
Finding the balance between in-house and outsourced resources
As the aforementioned survey suggests, legal departments are on a mission to lower costs. Given the cost of discovery, a logical place for many companies to start is by bringing pieces of the e-discovery process in-house, since this often demonstrates a substantial ROI along two vectors.
First, during the past several years, CLOs have begun to scrutinize and monitor e-discovery processing fees charged by outsourced third-party experts and service providers. In most instances, these relatively new line items have doubled and tripled year by year, as average data volumes have migrated upward from gigabytes to terabytes. By taking portions of the e-discovery process in-house, CLOs have successfully started lowering these external processing fees.
More Benefits of In-House E-Discovery
More benefits of in-house e-discovery
As a secondary benefit, by taking control of the e-discovery process, organizations are in a better position to aggressively reduce the volumes of data being sent to outside counsel for privilege and relevancy review. At an average rate of $3 to $5 per document reviewed, even modest data culling techniques can save hundreds of thousands of dollars on a single matter.
Despite these clear advantages, there is often reticence to make the transition because the use of service providers has created significant inertia. However, in these economic times, such luxuries can no longer be rationalized. Assuming that an entity decides to explore insourcing, it’s important to determine whether the move makes good economic and legal sense for their unique scenario. What works well for one company may not work well for another. A myriad of factors must first be considered, including: litigation volumes, deadlines and time frames, regulatory requirements, corporate culture and so on.
Discovery is a multifaceted, multiphased process that requires significant cross-functional coordination internally. In most instances, legal teams should expect to work more closely with IT, records managers, information security and affected business units as they begin researching and becoming familiar with the technology solutions that could simplify their workload and make their jobs more productive.
A good place to start is by examining the framework promulgated by the Electronic Discovery Reference Model (EDRM). The EDRM is an industry group that was created to develop and establish practical guidelines and standards for e-discovery. The EDRM model breaks e-discovery into the following five phases stages: Identification, Preservation/Collection, Processing/Analysis/Review, Production and Presentation. This process-oriented treatment helps break down the various stages into silos that can be more effectively evaluated for potential insourcing.
EDRM: The Identification Stage
EDRM: The Identification stage
Using the EDRM model as an architectural blueprint, legal teams can make informed decisions about which areas of discovery to bring in-house and which ones are better left to outside experts or service providers. For example, it often makes sense to begin with the first stage of discovery: Identification. The decision to bring this function in-house frequently hinges on whether or not the legal team has access to a strong IT department. If so, it’s likely the two teams can effectively collaborate on creating a map of all relevant data sources that can be referenced when a new matter arises.
Similarly, if legal and IT can successfully place and enforce a legal “hold” on electronically stored information (ESI), the second stage of e-discovery (that is, Preservation) is an excellent candidate to bring in-house.
On the other hand, certain stages of the e-discovery process which are more likely to result in judicial challenges (such as Collection), are often left to the experts (since interfacing with disparate data sources and using special forensic tools can be challenging). Defensibility and transparency at this early foundational stage of the process is imperative, and it often makes sense to utilize a third party that can testify to the Collection process.
Whereas some stages of the EDRM are not as clear-cut, one of the most obvious areas to consider for insourcing is the Processing/Analysis/Review stage. Universally, this area is considered to be the most expensive part of e-discovery and one of the most critical in determining the outcome of a case. Companies routinely spend in excess of $1,800 per GB simply to process the data-only to learn that a mere 10 to 20 percent of that data ends up as relevant.
Increasing data volumes merely exacerbate the need to consider insourcing this part of the process. Fortunately, making a business case to internalize this function is frequently a slam dunk because the alternative options (that is, outside service providers) are often two to three times more expensive. Additionally, these third-party options don’t usually provide early case assessment capabilities, which are critical to optimizing case strategies.
There are specialized Processing/Analysis/Review solutions that can help legal departments to move more quickly through the data, separating the wheat from the chaff in days versus weeks. E-discovery technology can help legal departments quickly understand case facts to make informed case strategy decisions and produce a tighter, more relevant subset of data before passing to outside counsel for review. With outside counsel billing rates exceeding $100 per hour for manual review, the cost savings can quickly add up.
For example, one Fortune 500 company recently reduced their discovery costs by $1.7 million by using a Processing/Analysis/Review solution over a seven-month period. By delivering a tighter data set to outside counsel and minimizing the number of relevant documents, they also lowered attorney review costs by more than $2.9 million, resulting in ROI results of 435 percent.
EDRM: The Production and Presentation Stages
EDRM: The Production and Presentation stages
During the last two stages of the EDRM (that is, Production and Presentation), there are third-party requirements to consider, such as compliance with Rule 34 of the Federal Rules of Civil Procedure (FRCP). Rule 34 prescribes production of ESI to be discussed during early meet and confer conferences.
Therefore, the decision to bring this function in-house will depend on which format is deemed acceptable (native or image-based) and whether metadata is included. If production formats can be pre-negotiated to native or XML standards, the task may be efficiently done by using internal tools. However, if the production requirements in a particular case are complex or highly customized, the decision to outsource could make more sense.
In addition to cost savings, in-house legal teams should think about other benefits of taking more direct control over their discovery processes. Bringing the right combination of people and tools in-house can provide legal departments with insight to make better, early-case assessments sooner in the case life cycle. And that ability is priceless since it may shed light on the decision to quickly settle a losing battle.
In these difficult economic times, most legal departments are attempting to reduce costs from outside counsel and trim e-discovery costs. Both of these goals are furthered by the move to bring areas of e-discovery in-house, and this trend seems to be gaining momentum. By shedding light on the process and targeting the most expensive areas of discovery first, companies can make the biggest impact on litigation costs while improving defensibility in the courtroom.
Dean Gonsowski, Esq., serves as Vice President of E-Discovery Services at Clearwell Systems where he helps enterprise customers deploy best practices as they bring e-discovery in-house. Dean is a licensed attorney in the states of Colorado and California. Dean is a member of The Sedona Conference Working Group on Electronic Document Retention and Production (WG1), the Electronic Discovery Reference Model (EDRM), and teaches a series of continuing legal education (CLE) courses on various e-discovery topics. He can be reached at firstname.lastname@example.org.