This lesson comes in handy when reading a new Law.com article entitled Law Firm Cost Recovery is Here to Stay. The article discusses the results of a survey by Mattern & Associates about law firm cost-recovery practices. Among the types of costs studied are overnight delivery, outgoing faxes, copies, telephone calls, legal research and “contract attorneys and legal assistants.”
Can you figure out which one of these is not like the others?
As explained in ABA Formal Op. 08-451, if a firm bills the cost of a contract lawyer to the client as a disbursement, the firm may not add a markup to the fees that the contract lawyer has charged the hiring attorney. However, if the firm bills the contract lawyer’s services to the client as a professional fee, the firm can add a surcharge to the cost paid by the hiring attorney, provided the total charge to the client represents a reasonable fee for the services provided to the client. As the ABA explained,
[t]his is not substantively different from the manner in which a conventional firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between the law firm and the lawyer.
In light of this language, it’s clear that the ABA believes that contract lawyers have more in common with associates in a firm than with photocopies. Therefore, in my view, the services provided by a contract lawyer should always be billed out as a fee, rather than a disbursement. After all, just because you can include a markup when you’re billing a contract lawyer’s fees out as a professional fee rather than as a disbursement doesn’t mean you have to. Moreover, I doubt that the mid-sized and large firms that responded to the Mattern survey bill their contract lawyers out at cost. If those firms are charging a markup, the Mattern survey shouldn’t have included contract lawyers as a type of “cost” to be recovered.