{"id":3921,"date":"2005-06-28T15:18:41","date_gmt":"2005-06-28T19:18:41","guid":{"rendered":"http:\/\/blogs.law.harvard.edu\/formerlyknownas\/2005\/06\/28\/when-outsourcing-just-pass-on"},"modified":"2011-08-05T14:57:36","modified_gmt":"2011-08-05T18:57:36","slug":"when-outsourcing-just-pass-on-the-cost","status":"publish","type":"post","link":"https:\/\/archive.blogs.harvard.edu\/ethicalesq\/2005\/06\/28\/when-outsourcing-just-pass-on-the-cost\/","title":{"rendered":"when outsourcing, just pass on the cost"},"content":{"rendered":"

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Carolyn Elefant of MyShingle<\/FONT><\/A><\/EM> has asked “Is There An Ethical Obligation to <\/FONT><\/DIV>
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Pass On Cost Savings from Outsourcing?”<\/FONT><\/A>  After checking my own viscera,<\/FONT><\/DIV>
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and confirming them with <\/FONT>Model Rule 1.5<\/FONT><\/A>,<\/FONT> and Comments thereto, and with the <\/FONT><\/DIV>
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Statement of Principles<\/FONT><\/A> [in Billing for Services and Disbursements] of The Task <\/FONT><\/DIV>
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Force on Lawyer Business Ethics (ABA, 1996) (excerpts via LawCost.com<\/FONT><\/A>), <\/SPAN>I’ve <\/SPAN><\/FONT><\/FONT><\/DIV>
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concluded:<\/FONT><\/SPAN><\/DIV>
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Every arrangement for fees related to legal services and  <\/FONT><\/DIV>
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disbursements must be premised on “at the least, a fully <\/FONT><\/FONT><\/FONT><\/DIV>
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informed client.” <\/FONT>Statement of Principles<\/FONT><\/A><\/DIV>
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<\/FONT> <\/DIV>
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A law firm that plans to outsource a client’s legal services <\/FONT><\/DIV>
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must fully disclose the arrangement to the client, and must <\/FONT><\/DIV>
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receive the client’s agreement. (see Model <\/FONT>Rule 1.5<\/FONT><\/A>(e) re <\/FONT><\/DIV>
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division of fees; <\/FONT>Principles<\/FONT><\/A> on Staffing)<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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“complaint Bill”  “It is the obligation<\/EM> of the lawyer and law firm to <\/FONT><\/FONT><\/DIV>
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assure that <\/FONT><\/FONT>the client fully understands and agrees to the basis for <\/EM><\/FONT><\/FONT><\/FONT><\/DIV>
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billing for disbursements<\/EM> and other charges.”  This includes <\/FONT><\/FONT><\/FONT><\/DIV>
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“whether overhead other than direct charges<\/EM> paid to the <\/FONT><\/DIV>
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vendor are included.”   <\/FONT>Principles<\/FONT><\/A> on Disbursements\/Costs.<\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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A lawyer shall not make an agreement for, charge, <\/FONT>or collect . . . <\/FONT><\/DIV>
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an unreasonable amount for expenses<\/EM>” (Rule 1.5 <\/FONT>(a)), but may <\/FONT><\/DIV>
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only charge “a reasonable amount to which the client <\/FONT>has agreed <\/EM><\/FONT><\/DIV>
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in advance or<\/EM> . . . an amount that reasonably reflects <\/FONT>the cost <\/EM><\/FONT><\/FONT><\/FONT><\/DIV>
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incurred<\/EM> by the lawyer.” (<\/FONT><\/FONT><\/FONT>Comment [1]<\/FONT><\/A> to Rule 1.5)<\/FONT><\/DIV><\/BLOCKQUOTE>
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A law firm wouldn’t charge a client a “profit margin” above the fee of an expert <\/FONT><\/DIV>
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consultant or witness, and therefore should not do so with fees for outsourced <\/FONT><\/DIV>
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legal services.  If it chooses, it might allocate reasonable overhead for arranging <\/FONT><\/DIV>
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the outsourcing (which is a “cost” to the firm), but it is difficult to imagine that this <\/FONT><\/DIV>
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amount is anything but de <\/EM>minimis<\/EM>. (I presume that attorney time spent within the <\/FONT><\/DIV>
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firm reviewing the work-product from out-of-firm sources will be billed to the client <\/FONT><\/DIV>
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or has otherwise been factored into the fees be charged.)  <\/FONT><\/DIV>
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<\/FONT> <\/DIV>
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Therefore, I agree with George Washington University law professor Thomas  \"complaint<\/FONT><\/DIV>
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Morgan, who is quoted recently saying that ethics rules require law firms to pass on to <\/FONT><\/DIV>
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clients cost savings from outsourcing.  (see <\/FONT>Made in India<\/FONT><\/A> By Daniel Brook, Legal <\/EM><\/FONT><\/FONT><\/FONT><\/DIV>
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Affairs<\/EM> (May\/June 2005).  Unless <\/FONT><\/FONT><\/FONT>Lisa Solomon<\/FONT><\/A> is equating a “reasonable measure <\/FONT><\/DIV>
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of profit” with “properly allocated overhead,” I disagree with the promotional<\/FONT> <\/FONT><\/FONT>materials<\/FONT><\/A> <\/FONT><\/DIV>
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written by Lisa, where she says that an “attorney may charge the client a premium or <\/FONT><\/DIV>
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reasonable measure of profit in excess of the research and writing provider’s cost to <\/FONT><\/DIV>
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the attorney, as long as the total charges to the client are reasonable.”  <\/FONT><\/DIV>
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