[This is Part 2 of a 5-part blog series. Read Part 1 here.]
With law firm rates on the rise and corporate legal departments under increasing pressure to cut costs and improve efficiency, it’s no surprise that legal departments are looking to outsource less legal work. In this series, we’re discussing how outsourcing smarter might be the better solution because bringing technology and resource-intensive work like ediscovery in-house comes with a great deal of hidden costs. We’ve identified three areas of cost around owning and implementing ediscovery technology – acquisition, implementation, and maintenance – and in this post, we’ll focus on the hidden costs of acquisition, which involves much more than just the cost of a software license.
If your company is anything like most large organizations, there’s a lengthy process for purchasing new technology that involves multiple people in multiple departments researching, sharing data, and negotiating over the course of months. The process might look something like this:
- Relevant departments (IT, legal, compliance, etc.) meet to discuss what they need out of an ediscovery solution.
- A point person or team researches potential solutions to come up with initial list for consideration.
- Meet with vendors to get information on pricing and initial demos.
- Narrow vendors down to a short list.
- Meet internally to discuss true costs and ROI.
- Negotiate with vendors on pricing.
- Review and negotiate contract/licensing agreement.
- Relevant parties meet to make final decision.
- Sign the contract.
This process rarely happens quickly. These purchasing conversations are in addition to everyday job responsibilities, and so they easily get pushed off priority lists, and if your company requires a Request for Proposal (RFP) process, it will likely involve more people, more paperwork, and more time spent in meetings and negotiation. Longer process means more hours, and every hour spent discussing new technology is an hour spent away from department work. We asked one prominent on-premises ediscovery software vendor about their sales cycle when working with large corporations, and they reported that it takes an average of 1.5-2 years between their first conversation with a corporation and the time the contract is signed.
On-Premises or Cloud-Based Ediscovery?
One of the first big decisions you’d need to make as part of the decision-making process would be whether an on-premises ediscovery software, (like Relativity, Concordance, or iCONECT), or a cloud-based software (Logikcull, Everlaw, Casepoint, etc.) makes more sense for your company. Whichever you choose, there will be additional costs you need to consider before you make the leap to bringing them in-house.
Hidden Costs & Risks: On-Premises Ediscovery Software
- Increased volume of data
- Hardware & operating software
The appeal of an on-premises ediscovery solution is that it eliminates the need to pay hosting fees and reduces the amount of hands your company documents pass through, reducing the risk of a costly data breach or spoliation. But on the other hand, hosting and producing that data in-house means that you are ultimately the only liable party in protecting it. How confident are you in your IT department’s security protocol? Can your infrastructure handle the added volume of ESI that comes with ediscovery? You should factor in time to research those policies and protocols before acquiring an ediscovery tool, or you run the risk of a costly lawsuit because ESI was mishandled.
One major cost of on-premises ediscovery that corporate legal departments might consider last – if at all – is hardware. If your organization isn’t already equipped to store, manage, and archive large amounts of data, then there’s going to be a large cost outlay to set up a data center that can support the added volume and sensitive nature of data related to litigation. Hardware costs include setting up a server room, the servers themselves, increased utilities cost for electricity and HVAC, installing baseline operating software (for databases, virtualization, etc.), as well as licenses for programs to process all appropriate file types. Relativity, for example, even at its smallest user license requires its own on-premises server with clear specifications for best practices and scalability. Additionally, you’ll need to ensure you have the IT staff to set up and service this equipment. In this case study from Logikcull, they estimated the infrastructure and software costs for processing, review, storage, labor, and support on a case with 5TB of discoverable data at a cost of nearly $800K a year.
Hidden Costs & Risks: Cloud-Based Ediscovery Software
- Additional storage for larger cases
- Some infrastructure outlay
- Supplemental software
Cloud-based ediscovery platforms are generally less expensive than on-premises solutions, but they come with their own hidden costs and risks. Cloud ediscovery tools usually offer storage-based pricing rather than usage-based pricing, meaning that you pay for the data hosted rather than the number of users, which can fluctuate based on where the case is in the ediscovery process. On the other hand, if you’re working with extremely large volumes of data, paying for data can add up quickly. For example, one cloud-based platform charges a flat rate of $2,000/month to host 4 cases and up to 50GB of data, then an additional $30-40GB after that. At $30/GB, in order to handle the 5TB of discovered data mentioned in the case study above, you’d be looking at an additional cost of $136,500 on top of the flat rate – that’s a total of $160,500/year.
With a cloud-based solution, you don’t need to worry about the bulk of the hardware and infrastructure costs mentioned above, but read through the system requirements carefully because your chosen provider might still require some level of on-premises hosting. Also, because cloud ediscovery technology is newer than on-premises software, their offerings are often less robust, requiring users to purchase additional software or outsource things like collection and processing. Before buying, consider what other tools you might need to purchase in order to come up with the true cost of using a cloud-based tool.
There are also security risks that come along with hosting your ediscovery data off-site. Even though a third party is technically responsible for making sure your data is secure and accessible, it’s ultimately your responsibility (for sanctions, fines, lawsuits, etc.) if ESI is mishandled or there is a security breach, so make sure you thoroughly understand the security risks and protocol before you buy.
While bringing ediscovery in-house might seem like a simple solution when legal departments are being pressured to cut costs, the process of acquiring an ediscovery solution is anything but simple. Not only is the decision-making process often lengthy and time-intensive in and of itself, but there is a great deal of planning and research to be done upfront to understand the true cost of acquisition beyond just the software license. In reality, doing the research, making the decision, and setting up proper accommodations for the ediscovery tool that you choose – whether it’s on-premises or cloud-based – will likely cost more than the license itself. And we haven’t even gotten to the cost associated with implementation – that is, rolling out the platform to your organization, training relevant parties, and making sure it doesn’t turn into “shelfware.” For more on implementation, stay tuned for the third post in our series.