Almost everything in the legal arena is now or is heading towards unit pricing. Even law firms are being coerced into AFA (Alternative Fee Arrangements) which are nothing but a unit price for a service. The question that comes to my mind is what exactly is a unit price and when is it not really unit.
Creating a unit price is quite simple. You take a task, usually broken down into many sub-tasks, and determine the cost to complete the task. This is done every day for manufacturing and the concept is just the same for tasks in our business. Let’s say you are making a widget, or better still, creating a document review database. What are your tasks.
- Identify sources of documents, custodians.
- Identify location and type of documents wanted. Servers, cell phones, PDAs, laptops, desktops, file cabinets, desk drawers, document warehouses (paper and electronic), other.
- Design and set up database.
- Process electronic data.
- Process paper.
- Load database.
Pretty simple. So what’s the price? Not so simple now. You have a variety of sub-tasks that are not easily quantified. The single task requested really cannot be unitized. You can, however, come up with units for the sub tasks. So, for step 1 this is a meeting (or multiple meetings) of attorneys, paralegals, clients, IT, Lit Support if it can’t be avoided, and maybe vendors. You can look at your piece of the task and determine that it will take 2 partner hours, 6 associate hours, 10 paralegal hours, and 4 IT hours. If the average cost, not billable rate, of the persons involved is $100 per hour you have a cost of $2,200. You can then mark that up to whatever you think the market will bear.
But wait, this is a guess. You can’t be certain that the estimates are valid, even if you’ve done this many times before. You need to give yourself some cushion, just in case. In the computer world, estimates are at least doubled and many times more to make up for the basic overconfidence of IT people. And then the markup is added. So let’s do that. Now your estimate is $4,400.
But wait. What if that is too low? Can’t risk that so let’s just bill some of the individuals hourly, like we have always done, in addition to the unit cost. Which ones, well, how about the partners. They shouldn’t be made into just another cost, you wouldn’t want them working your case on a leash would you. We’ll bill their hours separately. No one would argue that that isn’t fair. And maybe secretaries used to pull it all together for the report to the clients. They weren’t included in the task estimate because you really don’t know how much they will be needed. And other support staff. Oh, and direct costs, faxes, printing, office services, snacks and maybe meals at the meetings. Drinks after to congratulate ourselves on the great job we did.
What you see here is the fallacy of unit pricing in most settings. The unit doesn’t really account for the task, just the pieces of it that you can combine with little risk. The client will end up paying more than they would have paid if they had just done a standard hourly price. When you created the original estimate you really did think that it would be 22 hours so why is it now 44 hours plus. Can’t risk it, that’s why.
This kind of unit pricing puts all of the risk on the buyer and none on the seller and adding additional costs on top of the unit makes it even worse. This is what e-discovery vendors do every day though. Look at your bill. Is there technician time on it? What about project management? These should be included in the unit.
Before you get up in arms though, remember, you were not lied to. You were told that the unit price for EDD was a dollar amount. You were not told that it didn’t include everything. What you were told is a Not Lie, not a truth.
Open Door Solutions, LLP 
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