What does electronic discovery really cost? It is a question that is frequently debated but never resolved. Now, a just-published law review article attempts to do just that, analyzing “all the moving parts” involved in e-discovery and dissecting the actual costs at each step. The article also examines the tools that can be used to reduce costs and expedite e-discovery and it discusses ethical issues that may bear on e-discovery costs.

The article, Accounting for the Costs of Electronic Discovery, is written by David W. Degnan, an associate in the Phoenix office of the law firm Koeller, Nebeker, Carlson & Haluck. It was published in the winter 2011 issue of the Minnesota Journal of Law, Science & Technology.

“E-discovery is expensive, time-consuming and risky,” Degnan says at the outset of his article. While few would debate that statement, Degnan suggests that there is misunderstanding about all three points. As to expenses, some fail to factor in both internal and external costs; as to time, some fail to appreciate just how much time may be required; and as to risk, judges have tired of both counsel and clients who disregard or ignore e-discovery obligations.

All of this is complicated by the fact that the real cost of e-discovery is difficult to evaluate. “The problem is that it is difficult to predict and understand how many documents are in a gigabyte of data, how fast the contract reviewers will review the documents, or how much information will be culled out,” he explains.

Degnan goes through the process and attempts to pin down the costs at each stage. He bases his estimates on 100 gigabytes of data, which he says is the equivalent of 100 truckloads of paper documents. Here are some of his conclusions:

Cost of litigation support vendors. Litigation support vendors are retained in e-discovery to help with deduplication, culling, processing and analyzing of data in advance of the review process. For 100 gigabytes, Degnan estimates the total cost — including not just the vendor’s software but all related fees and costs — to range from $75,000 to $180,000.

Cost of contract document reviewers. Outsourcing document review costs $28 an hour or $56,000 a year, per reviewer. Alternatively, hiring staff reviewers ranges in cost from $80,000 to $130,000 a year, per reviewer.

Speed of document review. Review speed is determined by several variables, Degnan writes: how many documents in a gigabyte, the number of decisions required for each document, and the speed of the document reviewers. The average estimate of how many documents are in a gigabtye is 10,000, although that can range from 5,000 to 25,000 depending on the types of documents. Assuming a reviewer can review 400 documents a day (50 per hour), then to review one gigabyte of data would require anywhere from 12.5 days (for 5,000 documents) up to 62.5 days (for 25,000 documents).

(In a post here last November, Review Rates Using Catalyst CR are Triple the Norm, Study Finds, I cited a prepublication draft of Degnan’s article with regard to his conclusion that a reviewer reviews 50 documents per hour. I also noted the findings of the TREK Legal Track, which put the rate of review at 25 documents per hour in its 2006 overview paper and at 20 per hour in its 2007 overview paper.)

Cull rates and costs. Culling is the process of removing “junk” or irrelevant information from a data collection. The cull rate is the percentage of data that is culled out. Cull rates vary widely depending on the size and scope of the collection. “The cull rate … will depend on how specific the collection is, the key-terms used, the search parameters, and the amount of risk that counsel is willing to take in defining the scope of the review and collection,” Degnan writes.

For his paper, Degnan assumes three cull rates — 30%, 50% and 80% — and examines the costs for each. The end result is that, to review 100 gigabytes, the cost ranges from $7,000 to $284,375, and to process that information, the cost ranges from $75,000 to $180,000. Attempts to account for ranges such as these, Degnan says, “create nightmare scenarios for those who must plan a realistic litigation budget.” This is an area, he adds, that needs further research and study in order to achieve greater predictability.

Cost of e-discovery counsel. Estimating the cost of hiring e-discovery counsel is difficult because of variations in lawyers’ skills, expertise and prestige and because of regional variations among firms. Roughly speaking, Degnan estimates the cost of counsel for an e-discovery matter to be in the range of $2.70 to $4 per document, or $2.5 to $3.5 million per case.

Having gone through the costs of e-discovery, Degnan turns his attention to tools for controlling costs. He focuses on four tools that he considers key:

• Sampling. Sampling uses a snapshot of the data to draw conclusions about the entire collection. It is valuable for quality control and other purposes. With regard to cost, Dignan writes, “sampling provides insight into what the cost numbers for a project will be.” That insight can provide greater predictability in budgeting.
• Gap testing. Gap testing uses small samples to test and refine searches before launching full steam into the process. By achieving a higher cull rate and producing fewer irrelevant documents, gap testing can save costs in hosting fees, reviewer fees and QC fees, Degnan writes.
• Crawl system. Indexing files — which creates a system for search software to crawl — makes data more easily accessible and reduces the burden of production. Ultimately, crawl systems can be used to create predictability and transparency in cost calculations.
• Cooperation. “Cooperation is the attorney’s first and best line of defense to lower costs and get through an e-discovery event,” Degnan asserts, adding, “It is evident that courts routinely reward parties that cooperate and punish those who do not.”

In the final section of his article, Degnan addresses the interplay between cost concerns and a lawyer’s ethical obligations. Is it ethical to outsource? Are lawyers competent to handle e-discovery? Are obligations of candor and zealousness sometimes at odds in e-discovery?

For the answers to those questions, I refer you to Degnan’s article. His final words, however, bear repeating: “Until we remove the fear and mystery of calculating costs, we cannot fully understand the price of e-discovery or the implications of such sanctions received by counsel who did not represent their clients competently.”