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How to compare disbursement costs between firms and between matters

Many managers of outside counsel might feel satisfied and justified when they calculate disbursements as a percentage of fees, whether they make the comparison across firms or across matters within the same firm. That calculation, however, can be misleading because if all other factors are similar, firms or matters with higher billing rates and higher expenses will show the same ratio as those with lower billing rates and lower expenses.

A better methodology is to divide timekeeper hours into the disbursement figures. With this modification, billing rates drop out of the calculation. Although expensive partners may tend to prefer first-class seats, five-star hotels, and vintage Merlot, out-of-pocket expenses by law firms should not be a function of higher billing rates.