The Marking Up of Contract Lawyer Costs

The practice of law firms marking up the cost of contract lawyers has been around for ages.  See some of our previous posts about the subject:  a great analysis by Carolyn Elefant by clicking here and further analysis by clicking here. 

This week there was an article rocketing around the internet which was written by Cardozo Law Professor Lester Brickman and published in this week’s Forbes magazine.  We posted it on The Posse List Twitter account (we post items of interest to the Posse List community several times a day and you can see our feed in the right-hand column or click here).  

You can access the Brickman article by clicking here.   He summarizes the litigation process and then the use of contract attorneys in the e-discovery process and states:

“As part of this process, each document is coded as to document type, author, recipients, date, subject and other bibliographical data and put into a searchable data base. The coding is largely done electronically by data processors or paralegals. Documents that exist in paper form are converted to electronic form so that they can be electronically searched as well using “optical character recognition.” In addition to this objective coding, the documents are also searched to determine relevancy, whether they are protected by the attorney-client privilege or whether they involve sensitive business information that may call for a protective order to maintain some degree of confidentially. Initially, this subjective search is usually performed by contract lawyers working either for the vendor or the law firm. Law firm associates then do additional review as required.”

He then goes on to state:

“Though contract lawyers are paid about $35 to $40 an hour, plaintiffs’ firms “bill” this time to the class at $300 an hour or more, sometimes without disclosing that work was not done by the firm’s lawyers. In addition, class action firms are typically permitted to add a multiplier to the product of their time and hourly rates which may raise the hourly charge to $450 to $1,000 an hour. Consider this class action math. One contract lawyer working for 30 hours a week for 45 weeks per year can generate a profit for the class action law firm of about $1 million. Multiply that by hundreds of contract lawyers, and soon you are talking about real money.”

He (pretty much) gets the numbers/analysis right.  But a few points:

1.  The $35 or $40 an hour is different from what the law firms pay for them.   On average for most large projects where firms use staffing agencies, the mark up the cost of contract attorneys used to be close to double the amount that the attorney is paid ($55+) but has dropped to $45+ and sqeezed more on other projects — the exception being foreign language projects.

2.  The hourly rate for barred attorneys has actually dropped, on average, to $30-32 (and lower) in most of the major doc review centers of DC,  NYC and Philadelphia, and $22-25 in doc review centers such as Los Angeles/San Francisco, Ohio and North Carolina.

3.   More and more reviews are being done by paralegals and non-barred JDs at a much lower rate especially in jurisdictions that are less restrictive about the bar requirement (such as DC) and who can do doc review and this partially explains why the large doc reviews (such as several subprime litigations and other large litigations) are outside the normal DC/NYC centers. 

For further analysis of the Brickman article we turn (once again) to Carolyn Elefant who has further comments on Legal Blog Watch which you can access here.