The Problem With Hourly Billing

11/4/13

Most eDiscovery practitioners would agree that there are problems with the document review industry. These problems have existed for about as long as modern document review, however no one was really worried about them. Prior to the Great Recession, contract attorneys, staffing agencies, and law firms were all making a lot of money in document review. The corporate clients didn’t know any better.


Then the Great Recession hit. Corporate clients started taking a close look at how much they were spending on everything - document review included. Clients started demanding lower hourly bill rates. This resulted in document review service providers scrambling to find ways to hold onto business. Not surprisingly, they lowered the bill rates by lowering the pay rates to the contract attorneys. This isn’t to say that law firms and staffing agencies didn’t take a hit. Contract attorney pay rates could only be lowered so much until you reach the point that contract attorneys stopped accepting them. 


A result of this race to the bottom that has either not been widely acknowledged or noticed is that the quality and efficiency of document reviews has suffered. It should come as no surprise that this is the outcome of paying the same people drastically less for performing the same work.



This is also due to the clients not knowing any better. I found it shocking that corporate clients didn’t know how much they were paying on a per unit basis for document review. I no longer find it shocking because no one that I have ever spoken to knows the answer. In their effort to commoditize document review, they failed to determine a proper basis to determine and evaluate how much value a service provider was giving them. They incorrectly chose to compare services on a hourly bill rate rather than a per document cost for document review.


How does paying $50.00 per hour for document review instead of $60.00 per hour actually cost you more? Sounds counterintuitive, right? But if the inefficiency of the labor market causes the review to take 21% (or more) longer to complete the task, the client actually ends up paying more than if they were paying a higher hourly rate. Well, what if the client requires the contract attorneys to complete the work at the same review rate? The quality of the work would suffer. There is an old axiom that you can only have two of the following three choices: better, faster, or cheaper.


To be fair, more and more corporations are asking for per document billing as an option. Using a per document basis is the only measure that can truly allow an apples to apples cost comparison.