Top 10 ways companies waste money on discovery

While litigation and discovery may be inevitable, money should not be wasted.

This is part one of a three-part series.

Nearly every company doing business in the U.S. faces litigation at some point, and most view this as a cost of doing business. Unfortunately, this inevitability of litigation has created an additional side effect: Many organizations waste a lot of money on e-discovery.

Discovery represents, on average, from 30 percent to 70 percent of the total cost of litigation, with many organizations spending literally millions of dollars per year to identify, preserve, collect process and analyze both paper documents and electronically stored information, with the bulk of the expense around electronic media.

During the past five years, plaintiffs have become more aggressive (especially the class action plaintiffs’ bar), legal standards for discovery have become more stringent and, increasingly, courts are more likely to sanction those who do not follow the rules. Nevertheless, even though discovery is a “must do,” we still see a fair amount of wasted money and efforts.

Here is a list of the most common examples:

1. Failing to track spend on e-discovery. Even large organizations with disciplined supply chain controls often fail to track spend on e-discovery. Many e-discovery costs are buried within individual matters, and little effort is made to identify the total e-discovery costs separately from overall litigation spend, or use total spend to negotiate better rates with providers. One large corporation spent more than $50 million on litigation last year, and was surprised to learn that $26 million was spent on e-discovery alone—everyone had thought the number was much less. Adoption in July of the LEDES billing codes should make it easier to break down discovery costs from outside vendors. Still, the larger issues remains that total discovery spend needs be tracked not only within a matter, but also across all matters. The total may surprise you.

Another consideration here is whether or not in-house counsel even wants to know what they are spending. Some in-house counsel may not want to know what they spend on e-discovery, and are fearful of its inspection. With legal departments increasingly under cost pressure, there is a tendency to lump e-discovery costs into overall litigation costs, saying, “We were sued, we had to discover, what else could we do?” While litigation and discovery may be inevitable, companies can still benefit from taking a hard look at where they spend money on e-discovery.   

2. Failing to negotiate on keywords. Sometimes during the reactive firefight of litigation, companies fail to negotiate keywords with their opponent. In a widely reported case, the Federal Housing Finance Agency had to spend 9 percent of the agency’s entire budget restoring backup tapes and searching data in 2008-2009 because they agreed to an order that allowed the requesting party to choose any keyword it wanted. The courts allow and even encourage parties to negotiate discovery terms early in the process, but often companies do not negotiate. Do not just take what is given to you by your opponent.

3. Failing to have ongoing, routine and defensible data deletion processes. Year after year, companies accumulate more and more electronic data, which in turn can drive up discovery costs. Very few organizations have implemented ongoing, routine and defensible data deletion processes as a regular business process. Companies have a lot of electronic junk – older e-mails and files with no or expired retention requirements and little business value. If done intelligently, this older information can be deleted without incurring the wrath of the employees.

Part two of this article will look at additional ways companies waste money.

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Mark Diamond

Mark Diamond, Founder & CEO of Contoural, Inc., is a regular contributor to Inside Counsel on Litigation Readiness and Records Information Management. You can e-mail...

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