Cost recovery and the business of law.

To be effective advocates, we must be good business people, making our enterprises as profitable as possible within the guidelines of the ethical canons and reasonable professional practice. One area of business that lawyers may overlook is the recovery of costs we advance to our clients, such as photocopying and long-distance telephone calls.

Cost-recovery hardware and software can give contingency lawyers a quick and relatively easy way to keep track of these oft-ignored expenses. These expenses can add up to big dollars on income-and-expense statements each month.

Equitrac is one vendor that sells cost-recovery systems. Contact the company at [phone] or by e-mail at sales@ equitrac.com. Equitrac's World Wide Web site is at http://www.equitrac.com.

To monitor these costs, law firms can have a small computer installed on photocopiers, telephones, and fax machines. When staffers need to make copies for a case, they enter a user identification number into the computer, and the computer records the number of copies made to that "account."

From time to time, a staffer collects the data from the computers and places it into a single computer that keeps accounts on each matter for each client. Or the staffer exports the information for use in a time and billing or case-management program. This column discusses the issues you might face when installing cost-recovery technology.

When looking into installing these devices, you will likely encounter a number of "objections" from several quarters.

Objection No. 1: "I'm worried about ethics." The American Bar Association (ABA) believes that you and your client must have a written agreement about cost recovery that details the rates charged.

The ABAs December 6, 1993, Formal Opinion No. 93-379 addresses "Billing for Professional Fees, Disbursements, and Other Expenses."

It reads, in part, that "in the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves."

In other words, cost recovery should not be used to create a profit center. We can argue about the wisdom and appropriateness of the ABA's opinion, but to be safe, put your rates in writing and have your client sign off on them.

Objection No. 2: "It's too inconvenient." The biggest obstacles you are likely to face are setting up the codes for each matter and getting everyone in the firm to use them. If you use case-management or time and billing software, you probably are already using case or matter numbers.

Remembering to bring the client's number to the fax machine, for example, tends to get easier with time. Once your staff gets in the habit, taking the extra step is only a minor inconvenience. Some firms put a copy of the client numbers at each machine for easy access.

"Alphanumeric" terminals--devices that display letters and numbers--also provide an easy solution to this problem. The better devices have search features that allow you to type in a few letters or numbers of a matter, which brings you close to your selection. Then use arrow keys to make the right choice.

Look for big, easy-to-read screens that display information about each case, and get a computer keyboard for typing in the codes. The terminals also should provide on-the-spot "help" instructions for easier use. In firms that install these terminals, even occasional users have little trouble adapting to the automated world.

If all else fails, give recalcitrant users an override code, which lets them opt out of the program. This is by no means an ideal solution, but it is a way to appease those who simply won't cooperate while preserving the cost-recovery system for the rest of the firm. In a short time, you will be able to show any "hold-outs" just how much money the firm is losing because of their resistance to change.

Objection No. 3: "My clients won't like it." Charging for these "overhead" costs may be a difficult concept for some clients to grasp. Many personal injury lawyers say they feel uncomfortable billing back--and trying to collect--these significant expenses.

To make your expectations clear, add cost-recovery information and forms for charge-back authorizations to your retainer agreements and settlement statements.

Objection No. 4: "My office doesn't have a LAN." This is an interesting concern, but let me say this: Whether you have a local area network (LAN) installed at your firm doesn't matter.

A LAN does allow you to collect the data from remote terminals more easily, but only high-end cost-recovery applications use or require one.

Absent a LAN, you can hire a cable company to "wire" your terminals to a single computer, or you can periodically transfer data from the devices via floppy disk to the central computer.

Objection No. 5: "It's too much trouble." It's not. Installing these devices can actually save you time, trouble, and--don't forget--money.

One high-volume personal injury firm that I know reported the most impressive cost-savings statistics that I've seen. The office integrated a system into its case-management software program so that all cost-recovery information could be automatically posted to the client's accounts in the case-management program. This eliminates the need to re-key data from one type of report to another.

The firm tracked enough expenses in the first 60 days of use to pay for the implementation of the entire system--providing these expenses will be recovered from clients. Installing a system like this clearly has the potential to save the firm a lot of money.

Years ago, talking publicly about the business of law practice bordered on the unprofessional. Today, it would be unprofessional not to consider the economics of practicing law. You owe it to yourself, your staff, associates, and partners to make your law practice as profitable as a high standard of ethics will allow.

Take a look at cost recovery--you will get a great overview of these systems just by calling a vendor, and that's free consulting, folks! See what you think, and then, if you decide to install a system, let me know how it works for you.

Paul Bernstein is a practicing attorney and law office automation consultant in Chicago. He can be reached on the Internet at [e-mail]. Opinions expressed in this column are the authors and do not reflect an endorsement of any product by TRIAL or ATLA.