Budgeting for Support Services Staff, Equipment, and Facilities Management

As seen in Legal Management
October, 2009
 
With the renewed fervor to contain expenses in law firms, the focus on managing budgets is greater than ever. In a normal economy, budgeting for support services is difficult enough. As the backbone of the firm and the area that is the beginning and the end of the services spectrum, it is highly vulnerable to the swings of the services industry. However, there is hope.
 
Managing your budget/expenses is much like networking. If you try to do it only when you need to, it is already too late. The key is to lay the foundation prior to the need developing. If your contracts are structured properly and negotiated with the proper terms and conditions, you will be in an infinitely better position to weather economic ups and downs and to manage your budget appropriately. On the staffing front, the key is flexibility, which obviously is easier when the employees are not your own. However, many of the terms negotiated into your outsourcing contracts can be applied to your in-house operation.
 
CONTRACTS: LAYING THE BUDGET FOUNDATION
In negotiating equipment and outsourcing contracts for the past 12 years, one of our biggest challenges is educating our clients that there is a “different” way to structure an equipment and/or facilities management/support services agreement.
 
In an outsourcing relationship, you are paying a company to come in and add value to your operation. The company is supposed to bring operational expertise, market knowledge, state-of-the-art equipment suited to your needs, and trained and motivated personnel, all to relieve you of the day-to-day management of the outsourced area. The company should do it less expensively than you can due to its market power, purchasing expertise, etc. You should have the right to cancel the agreement at any time without penalty or unnecessary assumption of liability.
 
That being said, your equipment and facilities management contract should address the several criteria for your budget:
 
FLEXIBILITY
You should have the right to upgrade, downgrade, add, or delete a certain percentage or all of your equipment without lease buyouts, liquidated damages, etc., and 100 percent of your labor without penalty at any time during the contract term.
 
For example, when Bingham McCutchen acquired Swidler Berlin, the firms merged their offices into one space. Obviously, the staffing had to be adjusted, but the reprographic equipment that both firms had also overlapped considerably. The merged firm was significantly over-equipped. Under the outsourcing contract negotiated for Bingham McCutchen, it had 100 percent equipment flexibility, meaning the firm could add, delete, upgrade or downgrade all of the equipment at any time. In contrast, prior to the merger, Swidler had entered into leases that were not cancelable.
 
Beyond equipment, outsourcing vendors also will typically insert language in their contracts that prohibits you or a third party from hiring their employees. The clauses often stipulate that if you do so, then you must pay the vendor a penalty equal to six months worth of the individual’s salary. Though you may decide to allow this type of language in certain circumstances, if at all, quantify it and place certain conditions on it. Remember, during the term of the contract, you are paying for these employees. You are paying for their training, and obviously you are offering them better position/pay/benefits or they would not be coming to work for you. Also, if you are canceling the contract due to poor performance, why shouldn’t you be able to hire these employees, assuming you want them?
 
ASSUMPTIONS VS. FACTS
Many equipment and outsourcing contracts are based on “pie-in-the-sky” projections and unrealistic assumptions. Some of them incorrectly assume a decrease in the amount of overflow copying and scanning, or assume that the growth rate of certain volumes will continue. Many of these assumptions are necessary so the vendor can cost-justify its contract. Base your volumes and service levels on fact and unbiased analysis, not on a vendor’s “sales pitch,” to justify additional services or products.
 
LABOR NEEDS
How many support service associates does it take to make a copy? Whether your operation is in-house or outsourced, you should have criteria in place for how your operation should be staffed. These can be based on per-attorney/staffing headcount, volume-based, or square footage. Extenuating circumstances may apply to the different service offerings – for example hospitality, conference room set-up, floor deliveries, etc.
 
Consider the use of part-time personnel (retirees, college students, etc.). They tend to be more flexible, do not require benefits, and have a lower labor cost.
 
REVIEWING TECHNOLOGY
How many support service associates does it take to send a fax? None – you shouldn’t be sending faxes (or, if you do, it should be from your desktop). Instead, scan it and e-mail it. Take a look at your technology. Do you still have facsimile equipment in place? Do you still have cost recovery terminals on these facsimiles? Examine every piece of technology in your departments and see if it is still being used, whether it is still needed, and whether it can be minimized or eliminated.
 
MONITORING SYSTEM
Many outsourcing companies utilize quarterly review processes through which volumes, service matrix and operational and financial initiatives are formalized. If your outsourcing company or in-house operation is not providing this service, it should be instituted, with an emphasis on the budget and financial review process.
 
COST RECOVERY
Beyond the expense side of budgeting, attending to the revenue side of the support services operation can have an even bigger impact.
 
A few points to consider:
• Has the firm migrated to the print/scan model of cost recovery from the copy/fax model? If not, then you will face some long term challenges with your cost recovery revenue.
• In the past year, firms have lost approximately 30 percent of their copy cost recovery revenue to print subsequent to rolling out multifunctional printers.
• Approximately 33 percent of firms are charging for prints and scans (55 percent with an international presence) with acceptable realizations.
 
If your firm is electing not to charge for print/scan, then you must develop a “Plan B.” With the decreasing copy cost recovery revenue, more of your support service costs will shift toward overhead expenses. Look at reducing your centralized support services for both labor and equipment, and shift towards a more of an overflow based model.
 
Joseph P. Grubb is the Director of
Operations for Mattern & Associates, LLC

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