kevin by xiaoyounan

VIEWS: 11 PAGES: 11

									







    Billing Methods in


    the LPO Industry –
    A White Paper


    Deriving the best cost benefits
    through Cobra’s Least Cost
    Pricing Plan
    

    By Kevin M. Clark




    This white paper has been prepared by Cobra Legal
    Solutions to give corporations and law firms an
    overview of the pricing methods prevalent in the legal
    services outsourcing industry, to provide guidance on
    choosing the pricing model that could yield the best
    cost advantage, and in this context, to accentuate our
    unique pricing plans.
                   







Legal Processing Outsourcing (“LPO”), also known as Legal Services Outsourcing (“LSO”),
continues to be the front-runner in the race for “cost benefits”, among other services, in the
outsourcing industry. This, however, does not go to prove that clients seeking to outsource
legal work are assured of the maximum cost advantage due to them. The ever-increasing
number of LPO/LSO providers and added service lines, in the absence of uniform and standard
pricing systems contribute to the dilemma of picking the right LPO/LSO service provider, in
terms of best cost advantages. Adding to the existing difficulty is the concept of “alternative
billing,” a result of the recent recession, which has emerged as the latest catchword of the legal
industry. It has forced law firms, in the US and elsewhere, to seriously consider a shift from the
traditional hourly billing system. This phenomenon has also made its presence widely felt in
the LPO/LSO industry, with each LPO/LSO striving to come up with a pricing model,
innovative enough to battle with the ever-increasing competition. Therefore, where earlier,
with few billing methods in place, clients could easily compare and analyze the prices offered
by different LPO/LSOs for a particular service line, they now face the complexity of choosing
an LPO/LSO, which offers the most cost effective and efficient pricing model. This task might
be easier said than done, considering the blended pricing models adopted for the large number
of service offerings by LPO/LSOs.


PRICING IN THE INDUSTRY – AN OVERVIEW

The absence of a uniform method of pricing for a specific service line has resulted in different
LPO/LSO service providers adopting varied pricing methods for the same service. The reasons
for this practice of varied pricing may range from previous customer preferences to the service
provider’s need for showing a difference in pricing from the competitors in the industry.
Fig. 1 below describes the different pricing methods that are currently used in the LPO/LSO
industry. An LPO/LSO provider may offer a pricing model, which is in fact a combination of
one or more of the pricing methods, mentioned in the table below, for a specific service line.
There are no standards, as yet, for determining which pricing method is the best suited for a
specific service line. Let us take the example of one of the most widely outsourced legal
services, i.e. document review. The cost involved in the document review process is highly


                                                

                                                                                                     2

                  





unpredictable and can
consume a significant amount
of the total budget allocated for
the litigation. This is one of the
services in which billing is
traditionally based on the
number of hours spent in
review.
Most LPO/LSO service
providers are consciously
trying to move away from the
traditional hourly billing
system for this service line to
woo more clients and to
reinforce existing client
relationships. Offering
innovative pricing alternatives
has become the industry norm,
which is done either by
substituting the hourly billing
system with another billing
system or by remodeling the
hourly billing system itself, to
show the client that there is a
cost advantage to be gained by
sticking to the same billing
system. The alternative pricing
plans for document review services may include competitive hourly rates (which includes
special discounts, and exclude cost on review facility, computer cost, connectivity cost etc.,),
fixed price per page, fixed price per document, fixed price per gigabytes (GB) and other



                                                 

                                                                                                   3

                  





methods. There is no doubt that these “alternatives” would give clients an added benefit (the
question of how substantial this cost benefit would be, is debatable) but would that be the best
in the industry? Will the client be able to choose the most cost advantageous billing method,
before completing the project? Can the client be sure that the single billing method, determined
before the start of the project, provides the maximum cost advantage in the industry? The
answer is no. The best LPO/LSO pricing model would be the one which is a comprehensive
package of multiple pricing options, affording the client the flexibility of choosing the pricing
method at the end of the project.
THE COBRA SOLUTION: LEAST COST                        which form the basis of cost calculation, are
PRICING PLAN (LCPP)
                                                      almost always indeterminable at the
    The LCPP is an unequaled pricing                  commencement of the project. In order to
mechanism, which assures clients of the               assure the clients of the least cost, the LCPP
maximum cost advantage derivable from                 utilizes the following steps:
the LPO/LSO industry. The LCPP
                                                      STEP 1: Identifying to the client the best
guarantees clients an unparalleled “least
                                                      pricing methods
cost” for all outsourced legal services and
                                                      Fixing one pricing method to a single
has proven to be a unique billing model
                                                      service would not truly serve the purpose of
which is sustainable, reliable, profitable,
                                                      maximizing the cost benefit to the client.
and most cost-efficient.
                                                      There always lurks the probability that
What is “Least Cost” under the LCPP?                  another pricing method could yield better
Under the LCPP, the most competitive rates            costs. Therefore, LCPP involves identifying
are applied to the best pricing methods               and using those pricing methods, which
(typically three) specifically chosen for a           afford the utmost predictability, frequency
particular service line to arrive at the cost,        of use, and past client preferences in
which would be the most beneficial to the             relation to a particular service line.
client at the end of the project.
                                                      STEP 2: Applying the most competitive
How does LCPP assure “Least Cost”?                    rates to the identified pricing methods
    Important project related information, like       Under the LCPP, each chosen pricing
volume of work and duration of project,               method is fixed with the most competitive


                                                 

                                                                                                    4

                   





rate within the industry. The respective             periodically and updated regularly to the
rates for each of the pricing methods are            client in the form of reports. This ensures
made known to the client before the start of         that the client gets a clear picture of the
the project.                                         pricing progress under each method,
                                                     eliminating the chances of hidden charges
STEP 3: Determining the maximum cost
                                                     in the billing. It also helps the client to
cap for the project
                                                     compare the cost of service under different
The maximum cost that could be incurred
                                                     billing methods at various stages of the
by the client for the services rendered, is
                                                     project, and removes the burden of making
estimated at the start of the project based on
                                                     decisions on cost before the actual
available inputs (e.g. size of data, duration
                                                     completion of the project.
of project, volume of work, number of man-
                                                     STEP 5: Arriving at the least cost
hours) given by the client.
                                                     At the end of the project, the total cost from

STEP 4: Providing comparative cost                   each method is calculated and the client is

reports                                              billed only for the least amount. Thus, the

The cost of service based on each of the             client ends up paying only the least cost for

chosen billing methods is calculated                 a service.





                                                

                                                                                                   5

                      









                                  Figure 2: Highlights of LCPP

The LCPP thus provides the client the following benefits:

       •   An opportunity to compare the pricing for the services rendered, under different
           billing methods.
       •   Determines cost of service under the best pricing methods applying competitive
           rates available in the industry.
       •   Relieves the client of choosing a pricing method before commencement of the
           project.
       •   Choice of paying only the least cost, determined at the end of the project.


CASE STUDY: LCPP AND DOCUMENT REVIEW SERVICE
The benefits of the LCPP can be best explained by taking document review as an example. In
most document review projects, it is difficult for the client to determine and choose the best


                                                

                                                                                                 6

                   





billing method that would yield them the maximum cost-advantage at the very beginning of the
project. A billing model based on a single pricing method will not always yield the best cost
benefit. The reasons are that the cost-effectiveness in a billing method is subject to change,
depending on variables (such as review speed, platform, subject matter, documents type,
volume of data, productivity of the reviewer and so on) in each project. For example, there may
be circumstances in which per GB pricing proves to be cost beneficial at the initial stages of the
project. However, the situation could change later (due to variables), and at the end of the
project, another pricing method could be more beneficial than the per GB method.
Considering all these above-mentioned factors, Cobra, under the LCPP, provides three different
billing methods, at competitive rates, to its clients for document review service. They are: a)
per GB billing, b) per document billing, and c) per hour billing.

Why these three billing methods, specifically?

Per GB billing: Per GB billing is considered to be the best option for the client in the fast-
growing world of electronic documents. This method helps the client to predict the cost of
review, immediately after the discoverable data is processed, and to plan their budget
accordingly. Per GB billing usually produces the lowest cost when the review speed is slow
and the number of document is large.

Per hour billing: Per hour billing usually results in the least cost in long term projects, since the
document reviewed per hour increases as the project progresses. Due to our transparent
processes and daily communication, the client is able to track the progress easily, thus the client
can plan the workflow and fix appropriate deadlines well in advance. This method also helps
the client in planning and managing their cash flow well in advance. Hourly billing generally
produces the least cost on long term projects because the speed of the review steadily increases
as the project progresses and institutional knowledge grows.

Per document billing: Per document billing is considered to be the one of the most transparent
methods of billing and has a direct correlation between the cost and the work delivered. The
client is able to determine the project’s cost, well in advance, immediately after the processing of
data. The price under this method generally results in the lowest charge when the data sets


                                                 

                                                                                                     7

                    





contain large-sized documents, with many pages to be reviewed, or the document file sizes are
large, thus slowing down the platform. Both will make the project move slowly, due to the
nature of documents or the inefficiency of platform. These factors do not affect per document
billing, thus creating predictability early on in the process.

How is least cost calculated?

Under the LCPP, Cobra tracks the cost of its service under all the three pricing methods and
updates the client, periodically, about the same. And at the end of the project, Cobra compares
the total cost arrived from each of the pricing methods (see fig. 3) and offers to bill its client only
the least total cost derived through its best pricing model. Further, the cost of Cobra’s review is
capped either to “per document price” or “per GB price” and the final cost could be anything
that is significantly less than the capped cost under the LCPP. Cobra’s LCCP not only provides
it a competitive edge over the other market players in the LPO/LSO industry, but also provides
its clients a competitive edge over their market players.





                                                  

                                                                                                      8

                   









                                            Figure 3



A HYPOTHETICAL ANALYSIS

Cobra’s billing model, LCPP, provides the best cost advantage in the industry.

Scenario:
    •   1 GB of data is hosted in the platform. The client needs the data to be reviewed within 4
        weeks
    •   At this stage he looks for an LPO/LSO to complete this project





                                               

                                                                                                9

                   





The below chart illustrates how LCPP is most advantageous to the client in comparison with
other billing models.
                                            Comparison Chart

    Time        Company A         Company B      Company C                Cobra pricing - LCPP
                (Per GB @         (Per Hour @    (Per Doc @ $     Per GB        Per Hour       Per Doc
                $5000*)           $25*)          1*)

    Week 1      5000              1600           800              5000          1600           800
    Week 2      No change         1200           1200             No change     1200           1200
    Week 3      No change         1000           1800             No change     1000           1800

    Week 4      No change         700            2200             No change     700            2200
    Total       5000*             4500*          6000*            5000*         4500*          6000*
    Client      5000              4500           6000
                                                                            Least - $4500.00
    Invoiced

    * The figures used here are for illustrative purposes only and are not true estimates of Cobra’s
    pricing.
    *Controlled variables: Data size, duration, speed, subject matter, platform efficiency,
    document type, productivity of individual reviewer.
    * This chart is based on the assumption that:
             - Company A, B, and C, respectively, offer their service at alternative billing methods
             (per GB, per hour, and per doc), at competitive rates.
             - Cobra offers its service at competitive rate, but providing clients the opportunity to
             determine and pay only the least cost under its “Least Cost Pricing Plan”. It provides
             the clients the maximum benefit available in the industry and provides Cobra, a
             winning edge over the other industry players.




BUNDLED OFFER:


Cobra Legal Solutions has partnered with leading technology vendors to offer an on-demand,
end-to-end e-discovery, and document review solution. This bundled service is intended to


                                                       

                                                                                                        10

                   





provide the best document review services, high-level consulting, technical support, and project
management for large and complex litigations. This bundled offer combines the vendor’s state-
of-the-art data processing, document management and retrieval solutions with superior quality,
highly motivated, and cost effective offshore document review services, which is priced at a
competitive flat per GB rate.


CONCLUSION:


It is indisputable that outsourcing legal services is cost advantageous to the client. However,
deriving maximum cost benefit from the industry depends on the pricing method selected for
that particular service. Choosing a pricing method that best suits the legal service outsourced is
crucial for deriving the maximum cost benefit within the industry. It is an onerous task for a
client to decide a pricing model, amongst the existing plethora of alternative billing models,
which could provide the best cost-advantage. In order to help the client achieve the maximum
cost benefit, Cobra provides a simple, predictable, measurable, profitable, and transparent
billing model, the LCPP. Cobra after a thorough study and analysis of various pricing models
in the industry arrived at this unique billing model LCPP that keeps up with the spirit of
providing clients an unparalleled “least cost” for all the outsourced legal services. The LCPP is
a package that provides the client the following benefits: identifies the best pricing methods (not
more than three); applies the most competitive rates to the identified pricing methods;
determines maximum cost cap for the project; provides comparative cost charts periodically;
and arrive at and invoice only the “least cost” for the service rendered. The client makes
decision on pricing method only on the completion of the project, and pay only the least cost
arrived at through the LCPP. The LCPP is a completely transparent pricing model that
eliminates any hidden or surprise charges. The billing under LCPP is simple, reliable,
sustainable, transparent, and is most profitable to our clients in the industry.





                                                 

                                                                                                  11


								
To top