Should You Charge for, Or Mark Up the Costs of Legal Research?
Over at my Legal Blogwatch beat, I posted about an ongoing lawsuit against biglaw firm Chadbourne Park, alleging that Chadbourne wrongfully billed the client $20,000 for online research services when the actual cost to the firm was only around $5000. The suit alleges that the firm engaged in deceptive trade practices in violation of state law and committed fraud.
The case raises a couple of important questions for solos:
1. Should you mark up the cost of online legal research when you pass the charges on to your clients as a disbursement (i.e., expense item)?
2. Should you pass on costs of online legal research to clients as a separate "line item" expense, or treat the costs as overheard, encompassed in your overall billing rate or flat fee?
As to the first question, ethics rules govern the permissibility of mark-ups of out-of-pocket expenses. ABA Model Rule 1.5 provides that for costs such as telephone or copying charges or other out-of-pocket expenses, lawyers can charge a reasonable amount to which the client agrees in advance or an amount that reflects costs incurred by the lawyer. So, back in the day when law firms operated copy rooms as profit centers (and maybe the same is true now), they'd typically include a provision in the retainer agreement stating that clients would be charged .25/copy, without noting that copies only cost the firm a few cents.
Still, even where you pass on actual costs to clients, as opposed to mark-up costs, should you do so? Generally speaking, clients who receive a bill for $1000 for legal services often feel that they've been nickel-and-dimed when a lawyer tacks on fifty cents for the cost of postage or $2.50 for the cost of a file folder. Of course, where you incur an extraordinary expense like an airline ticket or several hundred dollars worth of copying, seeking reimbursement is fair and a client won't likely begrudge you for it. But collecting smaller expenses just makes you look cheap.
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