Direct Marketing Association, The v. Huber
Filing
63
MOTION to Exclude the Testimony of Plaintiff's Expert Witnesses F. Curtis Barry, Thomas Adler, and Kevin Lane Keller by Defendant Roxy Huber. (Attachments: # 1 Exhibit A- Barry Dep., # 2 Exhibit B- Barry Report, # 3 Exhibit C- Barry Dep. Exhs., # 4 Exhibit D- Adler Report and Decl., # 5 Exhibit E-1of5- Adler Dep. Exhs, # 6 Exhibit E-2of5- Adler Dep. Exhs, # 7 Exhibit E-3of5- Adler Dep. Exhs, # 8 Exhibit E-4of5- Adler Dep. Exhs, # 9 Exhibit E-5of5- Adler Dep. Exhs, # 10 Exhibit F- Adler Dep., # 11 Exhibit G- Lichtenstein Decl. and Report, # 12 Exhibit H- Keller Dep., # 13 Exhibit I- Keller Report and Decl., # 14 Exhibit J-1of3- Keller Dep. Exhs., # 15 Exhibit J-2of3- Keller Dep. Exhs., # 16 Exhibit J-3of3- Keller Dep. Exhs.)(Snyder, Melanie)
Page 1
1
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
2
--------------------------------------------------------3
THE DIRECT MARKETING ASSOCIATION,
4
Plaintiff,
5
v.
Civil Action No.:
10-CV-01546-REB-CBS
6
7
ROXY HUBER, in her capacity as
Executive Director, Colorado
Department of Revenue,
8
Defendant.
9
--------------------------------------------------------10
11
12
13
DEPOSITION OF F. CURTIS BARRY
14
15
16
17
October 19, 2010
18
Sandston, Virginia
19
20
21
22
23
24
25
HALASZ REPORTING & VIDEO
P. O. Box 1644
Richmond, VA 23218-1644
(804) 741-5215
Reported by: Mary L. Rosser, RPR
Exh. A
Page 32
1
(Exhibit No. 1 was
2
marked for identification.)
3
4
5
BY MS. SCOVILLE:
Q
All right.
So why don't you quickly take a look
6
at Exhibit No. 1 and just make sure this looks like a
7
complete copy of your report, please.
8
A
I believe it is.
9
Q
Okay.
Well, let's jump in and start on page 4,
10
if you would.
11
you talk about external commercial programming rates --
12
or from external vendors, and you give a range of $140 to
13
$225 per hour.
14
these numbers.
15
A
Okay.
On page 4, about halfway down the page,
I need to understand how you arrived at
Well, as I said, I deal with proposals
16
from vendors not every day, but, you know, much of the
17
time so I'm continually looking at what vendors have --
18
one, what they think the effort is to do something in a
19
narrative form, and then how much per hour they feel that
20
they will spend to do that modification.
21
all the steps required to develop and program the
22
modification, and they use different skill levels of
23
people to do that.
24
spends, say, 10 percent of their time, and then just
25
various levels of programming skills to do the work, and
So it includes
There would be a project manager that
Exh. A
Page 33
1
then people who QC the change and people that document
2
and so forth.
3
salaries.
4
Q
So there are all different skills and
And did you refer to any particular request for
5
proposal when preparing this report and coming up with
6
this range?
7
A
No.
I mean, I've got it in my head.
I have a
8
pretty good idea from one vendor to another what they
9
charge, and this is typical.
10
Q
Did you look at any labor market surveys?
11
A
No.
12
Q
What about any other sort of market survey data
13
14
that would give programming rates?
A
I deal with internal clients, programmers, and
15
we talk about cost all the time so I don't -- you know, I
16
have that in my head.
17
18
Q
And how great would the variance in these rates
be based on geography?
19
A
They really don't.
20
Q
And can you provide any sort of what I would
21
call confidence interval for this range?
22
see surveys that are done and they say --
23
A
Plus or minus five percent.
24
Q
Plus or minus five percent.
You know, you
25
All right.
And how
do you know that?
Exh. A
Page 34
1
A
Because I've been doing it for 25 years.
2
Q
All right.
Let's look at the top of page 5
3
where you give a range for internal IT systems'
4
development costs of $24 to $48 per hour.
5
arrive at those numbers?
6
A
How did you
Just from the work that I do with clients, I
7
know that those are representative of people that are in
8
companies I serve.
9
10
Q
And did you look at any particular client
files?
11
A
No.
12
Q
Again, this is something that you had --
13
A
Yeah.
14
Q
-- in your head based on your experience?
15
And,
actually, we just have gotten into a situation --
16
A
Yes.
We reverse, yes.
17
Q
All right.
18
A
They're in my head, yes.
Let's start over again.
It's what I deal with
19
all the time, and I have a high confidence that they're
20
within range.
21
Q
22
studies --
23
A
No.
24
Q
-- or other occupational studies?
25
And did you look at any Department of Labor
Refer to any
other literature in coming up with those numbers?
Exh. A
Page 35
1
A
No.
2
Q
And how great is the variance in these numbers
3
4
based on geography?
A
I wouldn't know.
I don't think that they're --
5
I mean, I've got a difference here of 50 to 100 so, I
6
mean, it's a pretty big variation.
7
8
Q
Right, but as I understand it, the labor costs,
the range would be based on experience --
9
A
True.
10
Q
-- is that right?
11
A
But good IT people are in high demand.
I'm sure
12
that southern California or downtown New York are going
13
to pay a lot more, but I can't talk to any particular
14
geographic variation to it.
15
16
Q
And would you give the same confidence interval
for these numbers, plus or minus 5 percent?
17
A
I would.
18
Q
In the next paragraph, you talk about that a
19
25 percent benefit rate can bring the labor charges to
20
$31 to $62 per hour.
21
25 percent benefit rate?
22
A
How did you come up with a
By working with -- you know, my knowledge of
23
companies' P&Ls and talking with management about the
24
increase in cost of personnel and what it takes to be
25
competitive versus, say, banks or larger companies, and
Exh. A
Page 36
1
2
3
that's typical.
Q
And, I'm sorry, since this is not my field and I
don't talk the lingo, what is P&L?
4
A
Profit and loss statement, the income report.
5
Q
Did you look at particular client files to come
6
up with a 25 percent benefit rate?
7
A
No.
8
Q
Did you look at any studies or literature to
9
determine that rate?
10
A
No.
11
Q
And how great is the variance in that rate based
12
13
on geography?
A
I think it's more -- I would say that it isn't.
14
This is an industry that's selling nationwide, so if you
15
want to attract good people you have to pay comparable.
16
It's hard -- you can't take somebody from a bank and make
17
them into a direct marketer of product generally, so
18
they're attracting people from around the county to help
19
them build their business.
20
Q
So there would be little variance based on
21
geography?
22
A
Yeah.
This is for, you know, for -- it's not
23
the top of the line.
There are companies that spend a
24
lot more, but this is what it takes to be running a
25
competitive business.
Exh. A
Page 53
1
A
Right.
2
Q
And as I understand it, these are not pricing
3
models that would be publicly available?
4
A
Right, no.
5
Q
They would be in response to requests --
6
A
Right, yeah.
7
Q
-- for proposals?
8
9
10
11
Okay.
When was the last time
you personally reviewed a pricing model?
A
We do a couple of them a year.
We did one in
the spring of this year.
Q
And were there any particular pricing models
12
that you relied on in forming your opinions in this
13
report?
14
A
No.
15
Q
So you're relying more on your general
16
17
experience with the pricing models?
A
And on the -- there's two aspects.
One is, as
18
we have in the exhibits, the cost of merge/purge, which
19
is certainly one of the smaller costs in this report, and
20
often -- and then the services.
21
people are going to develop, you know, a reporting system
22
for you comes back to these same kinds of costs that we
23
talked about a couple of hours ago.
24
than some complex model.
25
Q
In other words, where
So it's more that
So before we get into the specifics of the three
Exh. A
Page 54
1
categories, I just want to generally understand what you
2
did.
3
that you didn't do particular studies to come up with a
4
cost for each one of the three regulation areas, that you
5
were relying on your general experience to come up with
6
the cost; is that right?
And it's my impression from reading your report
7
A
That's true.
8
Q
Did you do any sort of formal studies with
9
10
regard to your opinions in this report?
A
Well, we did, from the mailing services point of
11
view, talk to some companies, three or four companies
12
about what the cost of insertion and postage and so forth
13
would be to actually mail the notice to the customer.
14
just wanted to be sure of that.
15
smaller cost.
16
I
That, again, is a
And I did -- the way it worked on this report
17
was, I put together what I thought the major costs were
18
back in the middle of September, and that was after
19
having read the statute and regulation, the complaint and
20
so forth.
21
would think this would translate to a particular company,
22
and then I did talk to some other people in the industry,
23
and in most cases I did not mention at all anything about
24
this suit because I didn't want to in any way, in any way
25
bias what I was trying to learn.
So I said, Okay, these are the costs that I
I was just looking to
Exh. A
Page 55
1
crossfoot my assumptions, and that was helpful and it
2
ended up in some cases decreasing my initial estimates.
3
Q
Okay.
But other than kind of checking your
4
estimates against some folks in the industry, you didn't
5
do any more formalized studies --
6
A
No.
7
Q
-- of the costs?
8
A
No.
9
Q
Did you refer to any literature or existing
10
studies to determine the costs?
11
A
No.
12
Q
Now, you're aware, I believe, that the Act
13
exempts retailers with less than $100,000 in gross
14
sales --
15
A
Yes.
16
Q
-- to Colorado residents?
17
A
Right.
18
Q
Did your analysis exclude that level of
19
retailers?
20
A
Yes.
21
Q
And how did you take that into account?
22
23
How did
you exclude those folks?
A
Well, I work primarily -- when I think about the
24
size of a business, I think about the size of the
25
12-month buyer file; in other words, how many customers
Exh. A
Page 57
1
THE WITNESS:
2
MS. SCOVILLE:
3
THE WITNESS:
Yeah.
Well, let's take about a
10-minute break then.
4
Okay.
Thank you.
5
(Break.)
6
7
8
9
10
BY MS. SCOVILLE:
Q
Right before our break, you mentioned that you
had talked to about 15 companies; is that right, to kind
of check your estimates?
11
A
Right.
12
Q
How did you select which 15 to speak with?
13
A
They were just -- some were software vendors of
14
commercial systems.
15
their judgment.
16
quickly, I don't have to spend a week telling them what
17
I'm trying to do, and I can get a, Have you thought about
18
this or maybe this is a little bit high or this is low.
19
Just people I trust.
20
Q
21
A
You know, I can give them an idea
also?
22
They were just people that I trust
23
24
25
And did you also speak with actual retailers,
Well, I mean, yeah, they were -- you mean big
box retailers or -Q
No.
I'm talking about actual multichannel
retailers --
Exh. A
Page 58
1
A
No.
2
Q
-- as opposed to software vendors.
3
A
No.
4
Q
And of the retailers, did they cover both
5
6
7
8
9
Most of them were multichannel retailers.
catalog and Internet?
A
Almost every one of my clients does.
There's
rarely one that isn't multichannel.
Q
And did you speak with a range of small to
medium and large retailers?
10
A
Mostly moderate, one large, one mega.
11
Q
And how did you decide on the number 15?
12
A
Well, we were trying to meet a date, and that's
13
about what I had time to do.
14
Q
And did you keep any notes of your conversations
15
with them?
16
A
Just one, which I've turned over to you that
17
had -- I didn't really -- you know, I wasn't trying to do
18
something methodically.
19
assumptions.
20
21
I was just trying to check the
It's in what you got last week, I think.
MS. SCOVILLE:
Okay.
Let's mark this as Exhibit
2, please.
22
(Exhibit No. 2 was
23
marked for identification.)
24
25
MR. SCHAEFER:
A very minor point, they may be
Exh. A
Page 60
1
that's it.
2
Q
3
And what were the names of the companies with
whom you spoke?
4
THE WITNESS:
5
MR. SCHAEFER:
6
Do I have to do that?
Well, it's not privileged.
Do
you want to step out and talk for one second?
7
THE WITNESS:
8
Okay.
(Off the record.)
9
10
MR. SCHAEFER:
Okay.
11
MS. SCOVILLE:
Could you read back the last
12
question for me?
13
(The question was read by the court reporter.)
14
15
A
Some of these I can't even tell you because I
16
didn't write the names on top of it.
I was just
17
scribbling.
18
they are.
19
101 is a software vendor called ProSource.
20
that.
21
it, I'm pretty sure is Wyland.
22
BY MS. SCOVILLE:
Like this first one, I don't remember who
The one that's marked ProS on the bottom of
I remember
And the one that's 100 that's got these circles on
23
Q
W-Y-L-A-N-D?
24
A
Right.
25
Q
And what kind of company is Wyland?
Exh. A
Page 61
1
2
3
4
A
They're a marketing service bureau company.
And
these others, I can't tie it down to a specific company.
Q
Okay.
Well, why don't you give me a list of the
companies with whom you spoke.
5
A
One would be D.M.insite.
6
Q
And what kind of company is that?
7
A
That's a web software company, web software
8
provider.
9
Q
Okay.
10
A
Let's see, I talked to CommercialWare, which is
11
a -- it's a software company.
12
able to do this, so I'm thinking about the calls I made
13
versus the ones I got back, and I can't specifically say
14
which ones these represent.
15
16
17
18
19
20
Q
Okay.
speak with?
A
I had a short time to be
But just generally, who else did you
Who are the other 15 companies?
Well, as I said, I made a number of calls and
got a limited number of call-backs.
Q
Okay.
Do you remember the retailing companies
with whom you spoke?
21
A
22
remember.
23
Q
24
25
I don't.
I'm giving you the ones that I
Do you have any other documents that would
reflect who the retailers with whom you spoke were?
A
No.
Exh. A
Page 63
1
even if he didn't specifically rely on this particular
2
phone call.
3
MR. SCHAEFER:
Let me ask you -- it's clear the
4
witness has some sensitivity about it.
5
is whether or not you can -- if you establish that the
6
information contained is relevant to the report or to the
7
opinion, that's fine.
8
didn't consider it, it seems to me that the name is not
9
necessary, other than in an effort to identify someone
10
The issue I have
If he didn't rely on it or he
without, I think, a reason typed in the report.
11
MS. SCOVILLE:
Okay.
I think we've already done
12
that, but let me take another shot at it.
13
BY MS. SCOVILLE:
14
Q
So, Mr. Barry, I understand that you in
15
mid-September came up with initial estimates of the costs
16
for companies to comply with the three categories of
17
Colorado regulations; is that right?
18
A
Yes.
19
Q
And then you spoke with 15, approximately,
20
companies, and then you made revisions of those
21
estimates; is that right?
22
A
Well, I validated what I was thinking, not based
23
on what they were telling me that it was going to cost
24
them.
25
experience.
Much of what I have in my report is what I have as
All I was doing was -- I didn't ask them
Exh. A
Page 64
1
what it would take them to do it.
2
process.
3
I never asked them what it was going to cost them because
4
I didn't want to get but too far into it.
5
6
7
I was validating the
That's why I don't understand.
I never asked,
Q
And why didn't you want to get too far into
A
Well, because I talked to Brann & Isaacson, and
it?
8
they told me from the very beginning to be very careful
9
not to solicit any work on this account; in other words,
10
you know, don't -- be very objective, which is what I do
11
in all my work, and, you know, if you're going to talk to
12
people, don't, you know, don't make a point of being an
13
expert, just use it to validate your process, and that's
14
what I've done.
15
to cost some company to do something is my estimate.
16
It's not what they've told me.
17
something and given it to me.
18
Q
The cost, I have no -- what it's going
They haven't estimated
So as I understand it, no company gave you an
19
estimate of what they have or have not done to comply
20
with the regulations?
21
A
No.
22
Q
What did you ask the companies?
23
A
I would say -- for example, if we talked about
24
web, we talked, as the requirements -- or as the report
25
says, and it's going to require a change in, say, the
Exh. A
Page 65
1
order path, I would ask them, you know, if you had to, if
2
you had to do some major change in the order path, how
3
much -- you know, what does that entail, and they'd
4
describe it to me, and then I'd say to myself, okay,
5
that's, you know, that's a moderate change or a small
6
change.
7
description so that I have any uniformity between
8
descriptions.
9
could say these were conservative estimates, that I
But I never gave them any kind of a written
It was really more to make sure that I
10
wasn't giving such a high number that we'd spend a lot of
11
time arguing whether it was 50,000 or 35,000.
12
Q
And it's my understanding that you revised some
13
of your numbers after speaking with these companies; is
14
that right?
15
A
Right.
16
Q
Okay.
And we'll get into the specific numbers
17
in a minute.
As I understand it, you did not have a
18
formulated list of questions when you called these
19
15 companies?
20
A
No.
21
Q
You didn't use a questionnaire?
22
A
No, no.
23
Q
All right.
24
25
And you didn't do anything to
methodically track their responses?
A
No.
Exh. A
Page 67
1
making a change to something that we think is
2
unconstitutional.
3
Q
And as I understand it from your testimony
4
earlier this morning, you did not tell the folks with
5
whom you spoke --
6
A
No.
7
Q
-- that you were acting as an expert in this
8
case?
9
A
That's true.
10
Q
We're getting into a little bit of a pattern
11
where we're speaking over each other.
12
A
Okay.
13
Q
So to the extent you can, please let me try to
14
finish my questions --
15
A
I will.
16
Q
-- and I'll try and let you finish your answers.
17
It's much easier for our court reporter that way.
18
A
Okay.
19
Q
You have given me the names of four of the
20
15 companies, Wyland, D.M.insite, ProSource and
21
CommercialWare.
22
15.
23
names of any of the other 11 folks with whom you spoke?
And as I understand it, you spoke with
Am I correct in stating that you don't recall the
24
A
25
Natural Solutions, which is a software
company.
Exh. A
Page 68
1
Q
Natural?
2
A
Right.
Let's see, the ones -- we've got
3
ProSource, Wyland, CommercialWare, D.M.insite, Natural
4
Solutions.
5
remember exactly who called me back.
6
of days to do it.
7
8
Q
I made a bunch of calls, and I really don't
Okay.
I only had a couple
So there are approximately 10 other folks
that called you back?
9
A
Right.
10
Q
And you don't remember any of those names?
11
A
Not with certainty.
12
13
14
I don't want to say
something and then have it be wrong.
Q
Did you discuss the names of the companies that
you planned to call with the Brann Firm?
15
A
No.
16
Q
Did you discuss the names of the folks with whom
17
18
you spoke with the Brann Firm?
A
No, not until they got my notes, and they
19
noticed there were a couple -- like the name on the top
20
of the one page.
21
22
Q
And if you would look at Exhibit No. 2, page
FCB100.
23
A
Okay.
24
Q
I think you told me that these are the notes
25
from speaking with Wyland, the marketing service
Exh. A
Page 71
1
the process, am I thinking correctly, and they said that
2
was fine, just don't slow down the report.
3
4
MS. SCOVILLE:
Okay.
This will be Exhibit 3,
please.
5
(Exhibit No. 3 was
6
marked for identification.)
7
8
9
10
BY MS. SCOVILLE:
Q
Do you recognize Exhibit 3 as an e-mail that you
sent to Matthew Schaefer on September 16?
11
A
Yes.
12
Q
Okay.
I'd like to ask you about the point that
13
you have numbered as "5".
14
additional time should I refine cost to change the order
15
management systems?
16
vendors fairly quickly?"
17
there?
18
A
It says, "With a little
We could probably do with two major
To what were you referring
I mean, precisely, I can't speak to it, but in
19
the general of trying to answer your question, you know,
20
I was interested in having the report about calculating
21
the Colorado tax, but not saving it, in other words, from
22
a customer -- helping a customer understand it.
23
24
25
Q
I'm sorry, I think I was having trouble hearing
your answer.
A
Could you say that again, please?
What I'm saying to you is, I don't know
Exh. A
Page 73
1
A
Well, the three requirements.
And all three did
2
not know anything about it, so now I have an indefinite
3
conversation.
4
Q
So when you were talking about calling vendors,
5
you were talking about software vendors who would change
6
retailer systems comprehensibly to deal with the three
7
requirements?
8
A
Yeah.
9
Q
I see.
And what you're saying is that when you
10
contacted D.M.insite, ProSource and CommercialWare, none
11
of them were familiar with the Colorado regulations; is
12
that right?
13
14
A
No.
I thought I said, I thought I said
ProSource, CommercialWare and Natural Solutions.
15
Q
I see.
16
A
Those are order management software companies.
17
Q
And none of those three were familiar with the
18
Colorado regulations?
19
A
No.
20
Q
What about D.M.insite, was D.M.insite familiar
21
22
with the Colorado regulations?
A
They were to a small degree.
They hadn't really
23
thought about it, hoping it would be overturned.
24
hadn't really done any detail thinking about it.
25
MS. SCOVILLE:
They
Mark this as Exhibit No. 4,
Exh. A
Page 75
1
A
Just that they were not -- it wasn't on their
2
radar.
3
me because I had already written down what I thought, but
4
I was concerned for them and their clients.
5
Q
It wasn't disconcerting for me or worrisome for
When you talked to retailers, what did you learn
6
in terms of whether multichannel retailers were aware of
7
the regulations?
8
9
A
About the same.
You know, they had -- there had
been only, I think only one news story on this topic, and
10
it was back in July.
11
that DMA was suing the State of Colorado.
12
had some errors in it.
13
long that just said this is it, more later, but it did
14
have errors.
15
Q
It was in Multichannel Merchant
They actually
It was literally one 8 1/2 by 11
But of the retailers with whom you spoke, about
16
50 percent were aware of the regulations as I understand
17
it?
18
A
Yeah, to some degree.
It doesn't mean they were
19
doing anything about it.
20
high certainty nobody I talked to knew the details of the
21
three requirements.
22
23
Q
I would say, I would say with
And Wyland, the marketing service bureau with
whom you spoke, were they aware of the regulations?
24
A
No.
25
Q
The next sentence reads of this e-mail in
Exh. A
Page 76
1
Exhibit 4, "So the impressions and costs were all over
2
the place.
3
considerably to avoid issues."
4
trying to avoid?
5
A
I took your advice and cut the costs down
What issues were you
Well, as you know, if you looked at my drafts,
6
which I had in my -- I think it was the September 17th
7
draft or whatever the first one to Brann & Isaacson was,
8
I had pushed myself to think through what I thought it
9
was going to take typically and put a dollar on it, and
10
those are the costs that I, as I talked to some people
11
not about what it was going to cost them, but just the
12
effort and the process, that I changed, and I don't, I
13
mean, I don't remember which ones changed and which ones
14
didn't, but the -- what Matthew had asked me to do was to
15
just be conservative with it, don't try to do a study of
16
a bunch of different companies.
17
out to do.
18
Q
That's not what we set
And when this e-mail in Exhibit 4, the last
19
sentence of that paragraph says "I took your advice",
20
what was Mr. Schaefer's advice?
21
22
A
I just said what it was.
It was to be
conservative.
23
Q
And that's the whole of his advice to you?
24
A
Yeah.
25
I mean, he's a lawyer, he doesn't know
anything about systems, and he trusted my judgment for
Exh. A
Page 79
1
an e-mail, a time sheet that you prepared for Brann &
2
Isaacson detailing your time and what you did?
3
A
Yes.
4
Q
I'd like you to look at the second page of this
5
exhibit under Thursday, September 23rd, and that entry
6
says, "Contacted/interviewed 15 companies to validate
7
cost of changing", right?
8
A
Yes.
9
Q
And then on September 28, the following Tuesday,
10
you have two additional interviews; is that right?
11
A
Yes, I do.
12
Q
Okay.
13
So there were 17 interviews in all, as I
understand it?
14
A
I believe you're right.
15
Q
Okay.
Do you remember the names of the two
16
additional interviews on 9/28?
I know that you've
17
identified one as Natural Solutions.
18
A
I don't recall.
19
Q
If we could go back to Exhibit No. 4, please.
20
And I see you tucking the exhibits into your
21
folder.
We just need to be very careful that all the
22
original exhibits that have the sticker on them stay with
23
the court reporter today.
24
A
Oh, okay.
25
Q
So we just need to make sure that at the end of
Exh. A
Page 80
1
the day we keep this on our radar screen so you don't
2
walk off with them.
3
A
4
5
MR. SCHAEFER:
the laptop there.
6
7
8
9
Okay.
You can make a pile in front of
That's fine.
THE WITNESS:
Okay.
BY MS. SCOVILLE:
Q
Okay.
So I would like you to go back to Exhibit
No. 4 for just a moment, and this is the e-mail where you
10
discussed -- oh, and I have the wrong one.
11
It's not Exhibit 4.
12
It's Exhibit No. 3.
I apologize.
Pardon me.
I want to make sure that I asked you the
13
question that I had in mind earlier, which is, I
14
understand that you did not ask outside vendors to give
15
you actual estimates for changing order management
16
systems; is that right?
17
A
That's true.
18
Q
Okay.
19
helpful?
20
A
And you did not feel that that would be
I did not have the time to do that and make the
21
date and, secondly, without a lot of discussion and
22
probably giving them something in writing, I wouldn't
23
have uniformity.
24
25
Q
All right.
If vendors could provide you with
some sort of more uniform estimate of costs to change
Exh. A
Page 81
1
order management systems, is that something that would be
2
helpful for your analysis?
3
A
That wasn't the objective.
4
Q
All right.
5
That's not my question.
My question
is whether or not it would be helpful for your analysis.
6
A
I wouldn't know until I saw what they gave me.
7
Q
And is it something that could be relevant to
8
your analysis?
9
A
It's possible, but I don't know.
10
Q
And I just want to make sure that I understand
11
your answers to the same questions as to retailers, that
12
you did not ask any retailers to provide you costs of
13
what they're doing or what they anticipate doing to
14
comply with the regulations?
15
A
No.
16
Q
And is that something that would be relevant to
17
18
19
20
21
your analysis?
A
I would have to see what they provide for it to
be relevant.
Q
Okay.
So it's possible that those numbers would
be relevant?
22
A
23
opinion.
24
Q
25
Yeah, but it wasn't the objective of this
All right.
Let's go back to page 2 of your
report, which is Exhibit No. 1, if you would, please.
In
Exh. A
Page 100
1
do exist, but you didn't rely on them to form this
2
opinion?
3
A
It's something I understand, I believe is fact.
4
Q
The last paragraph under 1(a) estimates that the
5
cost to modify the order path is conservatively estimated
6
at $5,000; for older technologies and companies using
7
outside vendors, the estimated cost is up to $10,000.
8
what data did you base this cost estimate?
9
A
On
Thinking through what I felt needed to be done
10
and using the numbers that we talked about this morning
11
that were back in the section about the data I've
12
considered.
13
14
Q
Want me to cite a paragraph?
No, that's all right.
I think I understand
you're referring to the estimated in-house --
15
A
Right.
16
Q
-- programming costs versus outside programming
17
costs?
18
A
Right.
19
Q
Did you do any particular math to come up with
20
the 5- to $10,000 number in terms of --
21
22
A
Just roughly that outside -- sorry to interrupt
you.
23
Q
No, go ahead.
24
A
Just in a general rule of thumb that outside
25
companies, their costs are at least double.
And, also,
Exh. A
Page 101
1
this 5- and 10,000 also involves the discovery and
2
evaluation process.
3
MR. SCHAEFER:
Stephanie --
4
MS. SCOVILLE:
Yes.
5
MR. SCHAEFER:
-- can we take a break just long
6
enough for me to check out?
7
MS. SCOVILLE:
Oh, of course, of course.
8
sorry, we are getting close.
9
I'm
break.
10
Let's go ahead and take a
(Break.)
11
12
13
BY MS. SCOVILLE:
Q
Okay.
Right before our break we were talking
14
about your estimates for changing the web order path as
15
5- to $10,000.
16
$10,000 into the components of designing the program
17
changes, developing, programming and testing?
18
A
Did you attempt to break that 5- to
Not in writing, I don't have them in writing,
19
but I did sit down and kind of go through that
20
mentally.
21
Q
Okay.
And how would you divide up this
22
particular estimate of 5- to $10,000 in terms of those
23
categories?
24
25
A
Well, I think that at least half of the --
anywhere from half to 75 percent of the costs are in the
Exh. A
Page 103
1
A
I did with the ones that had a reasonable idea,
2
you know, an awareness.
3
companies, if they weren't aware, then I wouldn't have
4
spent all my time trying to get them to know what to
5
do.
6
7
8
Q
In other words, with half the
And what was the feedback you got from actual
companies about the cost to change the web order path?
A
Well, I didn't ask anybody for a specific cost.
9
What I asked them was, am I thinking about the process
10
that you might have to go through, and then I put the
11
cost on it.
12
Q
And have you had any similar experiences with
13
the clients of your firm in terms of assisting them with
14
changing web order paths to comply with a similar
15
regulation?
16
17
A
With changing a web order path, yes, but not
with a similar regulation.
18
(Exhibit No. 10 was
19
marked for identification.)
20
21
22
BY MS. SCOVILLE:
Q
Okay.
Let's, if you would, take a look at
23
Exhibit No. 10.
24
report dated September 15th?
25
A
Do you recognize this as your draft
Yes.
Exh. A
Page 104
1
Q
If you would, take a look at page 4, please,
2
under C, Estimated Costs, 1, Order management, enterprise
3
and e-commerce systems.
4
A
Let's see --
5
Q
At the top of the page.
6
A
Yes.
7
Q
And in the underlined text, you have, "FCBCO has
8
not estimated the dollars but it could be a $50,000 one
9
time cost.
10
How the software vendor might charge for that
is obviously unknown as it would be a shared expense."
11
And then in the next paragraph, you say,
12
"Company website developers would have an equally
13
difficult time in making this change.
14
another $30,000 to $50,000 charge to inform the
15
customer."
16
This could be
First of all, I want to confirm that this part
17
of your draft report is referring to the transactional
18
notice.
19
A
Let me take a look at that.
20
Q
Sure.
21
A
I believe it does.
22
23
24
25
I'm not sure there isn't
some overlap between one and two now, but -Q
Okay.
How did you arrive initially at the
$50,000 for external costs and 30- to 50- for internal?
A
Just, as I said before, thinking through what I
Exh. A
Page 105
1
thought the issues would be, trying to put what I would
2
consider to be a cost on there that I could then
3
validate, and that looking at -- you know, thinking about
4
other projects we've done that are similar in the same
5
parts of the system, like the order processing part or
6
the web path part, trying to be realistic because, as we
7
said hours ago, IT people don't estimate accurately, and
8
I didn't want to come in too low initially.
9
kind of like this is a strawman figure, and then tried
10
to -- and then validate it and think further about it.
11
12
Q
Okay.
So it was
And you obviously changed your
estimates --
13
A
True.
14
Q
-- downward.
15
16
And why did you change the
estimates downward?
A
One, I wanted to make sure that I didn't --
17
since I don't have the details written down, that I could
18
talk through them and, you know, discuss them.
19
larger number like that, I think that's harder to do.
20
think there are very real costs to this statute, and what
21
didn't change is most of the things I identified -- most
22
of the areas that I identified in the initial report are
23
in the final.
24
Q
A
Yeah.
I
But just the dollar value changed?
25
With a
And what I didn't want -- nobody likes --
Exh. A
Page 106
1
I've never worked with anybody, whatever the issue is
2
that we're working on, if I come in and say, Well, I
3
think it's 5,000 and it ends up being 50-, nobody likes
4
that.
5
bringing it down, that has always -- whether it's an
6
estimate of my time or software.
7
personal style kind of thing.
8
with some huge increase.
9
10
Q
But if I say it's some other number and I'm
So it's more of a
I don't want to go back
Well, what is the most accurate number in your
professional opinion --
11
A
In the report.
12
Q
-- as to the actual costs?
13
A
In the report.
14
Q
The 5- to $10,000?
15
A
Yes.
16
Q
Okay.
And so I guess I'm still trying to
17
understand why you revised it downwards, other than just
18
not wanting to aim too high.
19
A
Well, I think, I think they're realistic, and I
20
also think that if the statute stands, I think that those
21
are very conservative estimates, that those are small
22
numbers as estimates go for IT changes.
23
big to a novice, but they're not a -- they represent true
24
costs, actual costs, and I believe that these will end up
25
being conservative.
They may look
Exh. A
Page 107
1
2
MS. SCOVILLE:
Let's take a look at Exhibit 11,
please.
3
(Exhibit No. 11 was
4
marked for identification.)
5
6
7
8
BY MS. SCOVILLE:
Q
Do you recognize Exhibit 11 as another draft of
your report?
9
A
Yes.
10
Q
Okay.
If you would take a look at page 4,
11
please, the top of page 4, and this is part of Exhibit A,
12
the transactional notice.
13
on page 4 says, "Estimated cost to modify order the order
14
path for the message is estimated from $15,000 to
15
$25,000."
16
of changing the web order path?
And the first full paragraph
And is that another iteration of your estimate
17
A
Yes.
18
Q
And that came after --
19
A
As best I recall, yeah.
20
Q
Okay.
21
And that appears to have come after our
initial estimate of 50- or 30- to 50-?
22
A
Right.
23
Q
I guess I'm still trying to understand what you
24
did or what changed in your analysis to take it from 50-
25
or 30- to 50- to 15- to 25- down to 5- to 10-.
What
Exh. A
Page 108
1
changed along the way?
2
MR. SCHAEFER:
3
A
Object to the form.
Well, again, as I said, I originally put a high
4
number, a strawman on that, realizing I was going to have
5
a week to two weeks to develop it, develop it further and
6
to think about it, and, you know, this is all this is.
7
This is not meant to be any more than that, that these
8
are working notes, working drafts, I guess is a better
9
way to say it.
10
11
BY MS. SCOVILLE:
Q
And what changed -- or why did you revise your
12
estimate downward from 15- to 25- in Exhibit 11 to 5- to
13
10- in your final report?
14
A
To be very conservative with the costs.
As I
15
said in the early part of this document, what flexibility
16
people have with systems, whether they use outside
17
companies to program them or they can maintain
18
themselves, whether their technologies are flexible, all
19
these things make some costs easier than others for
20
people to accommodate.
21
developers make it more expensive.
22
23
Q
Sure.
Older technologies and outside
And your 5- to 10- estimate takes outside
developers and older technologies --
24
A
Right.
25
Q
-- into account?
Exh. A
Page 109
1
A
True.
2
Q
Did you do any studies or any tests as you
3
revised the numbers downwards?
4
A
No.
5
Q
So you had initial estimates which were based on
6
your own experience of 50- or 30- to 50-?
7
A
Right.
8
Q
And then you had estimates of 15- to 25- based
9
on your experience?
10
A
Based on thinking about it more.
11
Q
And then you had your final estimate of 5- to
12
10- also based on your experience?
13
A
Yes, and a limited outside validation.
14
Q
Did anything that the 17 companies you
15
interviewed say to you factor into your decision to
16
revise these numbers downwards?
17
A
I would say no.
It was, again, a validation of
18
process, you know, what they think this means they'd have
19
to do.
20
you have to change the order path if that isn't true
21
then, you know.
22
Q
Obviously, I'm leading them through; you know,
And looking at Exhibit No. 11, can you tell
23
whether or not this draft was done before or after you
24
talked to the 17 companies?
25
A
I have no idea.
Exh. A
Page 114
1
printed; is that right, and that's what the 5- to 10-
2
estimate represents?
3
A
All the invoices would look alike, but we'd have
4
sufficient size on the front of the invoice to
5
accommodate whatever it is the companies feel comfortable
6
with saying.
7
have a friendly paragraph.
8
9
10
Q
Some might be one line long, and some might
And how common is it right now, this Colorado
regulation aside, for retailers to have forms that are
specially generated for different states' requirements?
11
A
Rare.
12
Q
Okay.
What are some of the other instances
13
where a separate form for a particular state would be
14
triggered?
15
A
There may be in horticulture provisions that say
16
something about seeds, quarantined products.
17
rare.
18
Q
It's very
You include that the cost estimate for modifying
19
the invoice or packing slip would be 5- to $10,000.
20
what data did you base that conclusion?
21
A
On
My experience in going through what I think
22
would have to be considered and the time to develop an
23
estimate, along with the time to develop a design and the
24
programming and testing.
25
Q
And did you break this 5- to $10,000 into
Exh. A
Page 115
1
different categories and give hourly estimates for each
2
step in the process?
3
A
Not as notes.
4
Q
But it sounds like you did that in your head; is
5
that right?
6
A
Yes.
Right.
7
Q
And can you recreate for me how you got to the
8
5- to 10-?
9
A
Well, as I said this morning, I believe it would
10
cost a couple thousand dollars to evaluate the change.
11
In the case of something this complex, it could easily
12
cost $5,000 if people aren't aware of it.
13
that the program -- the system design and the program
14
design, not the programming, is more than half the cost
15
of every change.
16
Q
17
instance?
18
A
No.
19
Q
I see.
20
A
-- as a programmer.
I said before
Programming is more than half in this
The design of what I have to do --
We call that program
21
design.
In other words, I'm going to take the statement,
22
the computerized statement, and I'm going to do this.
23
Well, I have to write all that down, I have to get
24
everybody to agree to it.
25
cost.
That's more than half the
So that's how I came up with it.
Exh. A
Page 116
1
2
Q
And did you estimate the number of hours and
then multiply it by hourly rates?
3
A
Right.
4
Q
Okay.
5
A
I used a blended rate between the $32 -- let's
And what hourly rates did you use?
6
look at the page.
If we look on page 4 of the final
7
report, we have $24 and $48 without benefits.
8
benefits into it, we have $31 and $62.
9
blended average of those two.
If we put
So I took a
10
Q
And did you just do a straight average --
11
A
Yes.
12
Q
-- 31 plus 62, divided by half?
13
A
Yes.
Like 47 or something.
So, again, trying
14
to be conservative, not trying to push it towards the
15
high side or the low side.
16
Q
So if you take $5,000 -- and I just did the math
17
right here -- divided by the blended rate, which is
18
actually 46.5, you get 107 hours of time to modify the
19
invoice.
20
A
Yes.
21
Q
And then you could do the same math to determine
That would be the low end, right?
22
how many hours it would be to modify to get to the upper
23
range of $10,000?
24
A
Right.
25
Q
And is that how you did the math --
Exh. A
Page 117
1
A
Yes.
2
Q
-- to get to these numbers?
3
A
Yes.
4
Q
And did you come up with the amount of hours
5
first or did you come up with the numbers, the totals
6
first?
7
A
I came up with the hours, you know, just how
8
many -- when you look at all the pieces to this and just
9
envisioning what most companies would have to do as they
10
figure out what they're going to do to meet this, if they
11
have to, and then I used the dollar averages.
12
Q
Now, none of the figures in your final report or
13
your draft reports are expressed in terms of number of
14
hours.
They're expressed in final costs.
15
A
Right.
16
Q
Do you have any notes or other documents that
17
would reflect your thinking in terms of hours?
18
A
No, I don't.
19
Q
Okay.
And I'll tell you -- I did the math
20
sitting here -- that it would take 215 hours at the
21
blended rate to get to $10,000.
22
A
Okay.
23
Q
How did you arrive at 215 hours?
24
A
With some technology, I'm going -- you know,
25
with like mainframe technology or some of the older
Exh. A
Page 118
1
technology, it takes two or three times longer to do the
2
same thing that it does on the technology of the last
3
couple of years, as much -- you know, there's more
4
documentation that's automated by the system.
5
the systems are more flexible in terms of, you know,
6
being able to figure out where you have to change a
7
program.
8
Q
9
10
11
You know,
And did you also do the 10,000 estimate in terms
of outside vendor costs, as opposed to using a blended
rate for internal costs?
A
Let's take a look here.
If we look at Exhibit
12
1A, my assumption, you know, based on -- my assumption
13
is, based on the numbers I have here on page 4, that for
14
an outsider to do the work, while they'll have more
15
skilled people, they'll charge more because of the profit
16
and so forth.
17
18
19
20
21
22
23
24
25
Q
And did you use a blended rate of the external
programmers?
A
I believe that the blended rate would be
somewhere like 150, 160, somewhere in there.
Q
Okay.
And how did you come up with that as the
blended rate?
A
Just from experience and knowing what, you know,
people typically end up having to pay.
Q
Okay.
So what people would pay for external
Exh. A
Page 119
1
programming is closest to 150 to 160 average?
2
A
Yeah, somewhere in that.
I mean, I don't
3
remember how it calculates out right now.
I will say
4
that, and you can see this in my drafts, that I use the
5
computer a lot to capture thoughts, and then I refine
6
them.
7
put them at the end of the document, and so I don't, I
8
don't write as many manual notes as I might have 15 years
9
ago.
You can see things that I throw out or I typically
I kind of think with the computer and kind of
10
capture things that way and then write over them or
11
discard them.
12
Q
So you don't have any documents that would
13
reflect how you did the math in terms of what blended
14
rate you used times how many hours to get to these
15
figures?
16
A
No.
17
Q
Okay.
I'm telling you how I remember doing it.
Did you do any tests or studies to come
18
up with the 5- to $10,000 estimate for modifying the
19
invoice or packing slip?
20
A
I didn't, but as I said before, I considered
21
those and I think my peers would consider those to be
22
conservative numbers, and that there will be costs the
23
companies will bear that are that or hirer, depending on
24
the technology and the skill levels and so forth.
25
Q
Did you refer to any literature or published
Exh. A
Page 120
1
studies in coming up with the 5- to 10,000 estimate?
2
A
No.
3
Q
And is that something you discussed with the
4
17 companies with whom you spoke?
5
A
What is the "that"?
6
"that" is?
7
Q
Sure.
Would you reword what the
Did you discuss your estimate of 5- to
8
$10,000 to modify the packing and order slip with the
9
17 companies with whom you spoke?
10
11
12
A
No.
I was talking to them more about process,
what would you have to do if you had to do it.
Q
If you could go back to Exhibit 5, which is one
13
of your earlier draft reports, on page 7.
This is the
14
paragraph we discussed earlier that you said related to
15
catalog sales and, as I understand it, would apply more
16
to modifying the packing slip.
17
A
What paragraph is it that you're looking at?
18
Q
The first full paragraph.
19
A
Right.
20
Q
"Retailers we have talked to are looking at a
21
variety of solutions and workarounds including having the
22
sales person or Call Center rep input a short phrase
23
message that will print on the customer order and refer
24
the customer to the website for more details."
25
something that companies are actually doing right now?
Is that
Exh. A
Page 122
1
question, which is, would it be more or less expensive
2
than what you've estimated in your report?
3
4
MR. SCHAEFER:
A
Same objection.
I don't know.
I don't know that it would be
5
acceptable.
6
BY MS. SCOVILLE:
7
Q
All right.
Going back to Exhibit 11, which is
8
also an earlier draft of your report, on page 4, you
9
initially estimated that to modify the invoice and
10
packing slip would cost 15- to $20,000.
11
know, I guess, what changed between your initial estimate
12
and your final estimate of 5- to 10-.
13
A
I'd like to
Well, first off, I don't know the date of this
14
document and where I was in that thinking process.
15
as I said, I started out with high numbers and brought
16
them to something that I felt was conservative as I
17
worked through it.
18
19
Q
And
And as I understand it, you did not do any
studies or tests or any other specific --
20
A
No.
21
Q
-- analysis in changing those numbers?
22
A
No.
23
Q
Going back to your full and final report --
24
THE WITNESS:
25
MS. SCOVILLE:
Can I ask you a question?
Sure.
And I don't know if I'll
Exh. A
Page 123
1
be able to answer it, but go ahead.
2
3
THE WITNESS:
I think you will.
Are we going to
eat lunch today or are we working through lunch?
4
MS. SCOVILLE:
5
at some point.
6
I am going to need to eat lunch
about 11:40.
7
Do you need to take a break now?
THE WITNESS:
Well, I'm just asking.
It's
I can sit
8
here all day, all night.
9
If you don't want to take a break, I may have a bite and
10
pass it to my new friend.
11
12
I have brought an energy bar.
MS. SCOVILLE:
lunch.
13
What would you prefer to do?
I would prefer to take a short
What about you, Matt, is that all right?
MR. SCHAEFER:
Yeah.
I think a short lunch
14
makes sense, try to keep it on the short side.
15
know what our options are.
16
THE WITNESS:
17
MS. SCOVILLE:
18
21
Go up to the Wawa.
Okay.
Well, let's push forward a
little bit before lunch, if you don't mind.
19
20
I don't
THE WITNESS:
All right.
BY MS. SCOVILLE:
Q
Let's go to your final report, the next section
22
of Exhibit A.
23
I think it's at the bottom of your stack
there.
24
A
Okay.
So we're done with this.
25
Q
All right.
What page?
Let's go to the next page, which
Exh. A
Page 126
1
2
A
Well, then it would take probably a week or so,
in a week's time.
3
Q
4
hour?
5
A
And how did you come up with the $40 to $60 an
I thought it was, from my experience, a good
6
average when you consider expensive management that's way
7
beyond that, where they would be more in the couple
8
hundred dollars an hour.
9
in the -- they pay them anywhere from 75- to $100,000 a
A call center director might be
10
year so figure that rate.
11
think it represents a conservative number.
12
13
Q
We talked about IT.
So I
And did you refer to any literature or published
studies in coming up with 2- to 3,000?
14
A
No.
15
Q
And you didn't yourself do any studies or
16
tests?
17
A
18
be done.
19
Q
20
I thought through all the things that needed to
I think that's doing my homework.
Okay.
But other than thinking through the
steps, you didn't do any sort of more formalized tests?
21
A
No.
22
Q
Did you discuss the call center costs with any
23
of the 17 companies --
24
A
No.
25
Q
-- with whom you spoke?
Exh. A
Page 127
1
A
No.
2
Q
So, again, the call center costs are based on
3
your experience, and these are your estimates based on
4
your experience?
5
A
Yes.
6
Q
Let's skip down to the second section, which is
7
B, Customer service call center costs to answer inquiries
8
and complaints.
9
Colorado regulation would result in a three to four
10
minute call.
11
based on?
12
A
You estimate that an inquiry about the
What is the three to four minute estimate
What data did you consider?
I've worked with a couple hundred call centers,
13
and I know that an average call for a customer service
14
issue is often in that range, and I think that this will
15
create a tremendous number, and I think I said in here
16
50 percent of the customers will call the call center and
17
I think it will be a major source of complaints.
18
Q
Okay.
Before we get to the 50 percent, just
19
sticking with the three to four minutes per call, are
20
there any published studies or literature that would
21
refer to the average call being three to four minutes?
22
A
I'm sure there are, but it's just -- I'm working
23
with call centers all the time so I have a pretty good
24
idea of these numbers because we use -- you know, we
25
benchmark all the time and we know what people pay and,
Exh. A
Page 128
1
you know, we have a pretty good idea that that's an
2
average for that length of time.
3
Q
You also give the opinion that a fully loaded
4
cost per call is typically between $1.50 and $2.00 an
5
hour, and you define "fully loaded" as being wages,
6
management, benefits, space, telecom, et cetera.
7
would include overhead, right?
8
9
A
So that
Within the call center, not within general
management.
10
Q
Sure.
11
A
And it wasn't per hour.
12
Q
Oh, I'm sorry, per call.
13
14
It's per call.
Okay.
But your per
call cost includes overhead, right?
A
Only the management of the call center.
15
doesn't include the CFO, the general manager, the
16
president, the owner, IT, accounting, any of those
17
people, fulfillment.
18
It
call center.
19
Q
It just deals with managing the
And did you refer to any particular studies or
20
data or literature in determining that the fully loaded
21
cost per call is typically $1.50 to $2.00?
22
A
I used my own experience and recall of many
23
customer studies -- many client studies that I've done of
24
call centers.
25
Q
But you didn't refer back to the client studies
Exh. A
Page 129
1
that you've done or at least any particular ones in
2
creating this opinion, right?
3
4
A
No, just that I know that it's an accurate
conservative number.
5
Q
Okay.
Let's go to the September 15th draft,
6
which is Exhibit No. 10, and if you could take a look at
7
page 6.
8
bullet point, and in the paragraph below that it says,
9
"Fully loaded cost per call is between $3.50 and $4.00.
In the middle of the page, there's an open
10
Fully loaded includes direct hourly wages, management,
11
employee benefits, space, telecom, etc.
12
industry benchmarks."
13
$4.00 estimate?
These are
How did you arrive at the $3.50 to
14
A
That has an error in it.
15
Q
Okay.
16
A
That's a conservative estimate of a phone order,
What is the error?
17
and the phone order in many companies includes the cost
18
of credit authorization.
19
through this, I realized that I had put the wrong number
20
in.
21
Q
Okay.
So when I was kind of working
So just so I understand it, the $1.50 to
22
$2.00 that's in your final report is simply for a
23
customer service call center cost, whereas the $3.50 to
24
$4.00 would include credit card authorization and the
25
order processing portion of a call?
Exh. A
Page 130
1
A
Not the order processing.
The $1.50 to $2.00 is
2
the management and the labor for the rep and the space
3
cost and the telecom.
4
includes additionally is the cost of the credit
5
authorization step, where there's no credit authorization
6
step in just answering a call.
7
my part.
8
Q
9
Okay.
Okay?
The $3.50 to $4.00, what it
So there was a mistake on
Back to your final report, you estimate
that 50 percent of the customers will have questions
10
about the use tax as a result of the transactional
11
notice.
12
A
How did you come up with 50 percent?
I believe that, as I said before, this will
13
create a lot of uncertainty in the minds of Colorado
14
customers that have shopped with out-of-state retailers.
15
That will generate a phone call, and we'll be explaining
16
what it is that they should know; if they live in
17
Colorado, this is what they're going to have to do.
18
I've got experience with issues that are not similar in
19
terms of legislation, but, for example, when we make
20
changes and we don't fully think them through and
21
customers have their first reactions or, for example, if
22
they're on backorder and they're on backorder more than,
23
say, a couple of days, we get a tremendous number of
24
inquiries when we create a problem for the customer.
25
This will create a problem.
And
Exh. A
Page 131
1
2
Q
What would an average percent of calls be if an
item is backordered?
3
A
Probably 30 or 40 percent.
4
Q
Okay.
5
Can you think of other examples that
would generate a high number of calls?
6
A
You know, periodically, there are billing
7
issues.
For example, you read in a paper where, let's
8
say, a big bank processor has doubled billed credit card
9
customers.
Well, that generates a tremendous -- you
10
know, everybody, whether they have it wrong in their bill
11
or whether they think they do because they're a
12
cardholder, it generates a call.
13
segments of the direct marketing public that are older
14
customers, not myself but older customers, they will call
15
because they think big brother is watching them; what am
16
I buying, how do I pay this.
17
first off, baby boomers are the largest segment of the
18
population, and there are catalogs, especially in women's
19
merchandise, that are fairly large where the average
20
customer is 60 or older, and they get something that
21
isn't worded well, isn't clear what they have to do,
22
they're going to call.
23
They're not going to call you.
24
us.
25
Q
There are certain
There's probably -- well,
That's the easy thing to do.
They're going to call
So what data did you use to reach your estimate
Exh. A
Page 132
1
of 50 percent?
2
A
Best judgment.
3
Q
And did you do any tests or studies?
4
A
No.
5
Q
And did you refer to any published literature?
6
A
No.
7
Q
We do have some e-mail correspondence.
I think
8
it has already been marked Exhibit No. 3.
This is your
9
e-mail with Matt Schaefer on September 16.
Point No. 6
10
says, "To figure number of call center calls, etc.
11
about if we figure 50 percent?"
12
Firm's response to your inquiry on that point?
13
14
15
A
I don't remember.
How
What was the Brann Law
I would say that it sounded
reasonable, but I don't specifically remember.
Q
Back to your final report, the next item in your
16
transactional notice calculation is professional
17
assistance, and you estimate that companies will need 3-
18
to $5,000 worth of professional assistance to do the
19
transactional notice.
20
$5,000 number?
21
22
23
24
25
A
How did you come up with the 3- to
Just from working through it, best judgment,
experience.
Q
What accounting assistance would be needed to
comply with the transactional notice?
A
Well, some people use their outside accountants
Exh. A
Page 134
1
the questions.
2
would be going back and looking at how they interpreted
3
what you told them and how they're going to proceed and
4
it's, I think, a conservative estimate.
5
6
Q
It wouldn't be in one sitting, but it
Did you do any tests or studies yourself to
determine the 3- to 5,000 amount?
7
A
Just that I know -- no.
8
Q
And did you refer to any literature or published
9
studies?
10
A
No.
11
Q
And did you discuss this with any of the
12
17 companies with whom you spoke?
13
A
No.
14
Q
Okay.
Going back to Exhibit 10, which is your
15
September 15th draft.
On page 4, you initially put the
16
consulting and legal expertise costs at 5- to $7,000.
17
A
Okay.
Where is -- right here.
18
Q
It is right above No. 3.
19
A
Okay.
20
Q
Consulting and Legal Expertise for Compliance
21
Costs - $5,000 to $7,000.
22
5- to $7,000 estimate?
23
A
How did you come up with the
Again, this was my original draft.
24
these others, they were strawman numbers.
25
down.
Like some of
I revised them
I may have asked Matt what he thought as an
Exh. A
Page 135
1
2
3
4
adviser, but, you know, they were a little too high.
Q
And did Mr. Schaefer indicate he thought the
5- to 7- was too high?
A
I don't remember specifically.
I'm just saying
5
I think I remember that, but I'm sure if he did you'll
6
show me an e-mail.
7
Q
Well, I don't have an e-mail.
8
A
I don't either.
9
Q
So that's why I'm wondering what your
10
11
discussions with him were.
A
Well, what I do remember is when we helped two
12
clients work on shipping and handling, I remember what
13
that number was, and it was in that upper range and he
14
felt -- what I remember is, I think that he felt that
15
might be too high.
16
Q
If you could look at Exhibit A.1.
17
A
In this --
18
Q
In your final report.
19
A
The final report.
20
Q
Exhibit No. 1.
21
A
Okay.
22
Q
I just want to make sure I understand.
Pardon me.
You've
23
got Basic statutory/regulatory requirements and Necessary
24
but not discretionary, and you've got the Totals for low
25
end first your compliance costs (sums of above), $10,000.
Exh. A
Page 147
1
basic data, so it varies.
2
it's accurate, but if you can't recombine it with
3
something, then what value -- you're not sometimes sure
4
what value it has.
5
6
Q
You know, how accurate it is,
In your experience, do retailers keep this data
for more than a year?
7
A
I think most do.
8
Q
Okay.
9
What would be the outer limit in your
experience as to how long a retailer would keep the
10
data?
11
A
I don't know if I could answer that.
I mean, I
12
just -- you know, maybe a couple of years.
As your
13
promotional schedule changes, then the history, it
14
changes.
15
promotion -- and companies have hundreds of promotions.
16
So you see the ups and downs.
17
with it?
18
Q
So, you know, unless you really plot every
All right.
Big deal.
What do you do
So going back to your report, just a
19
couple more questions on the transactional notice.
20
on Exhibit A, page 2, at the bottom of page 2, onto page
21
3, you talk about on-going compliance costs, and you
22
estimate on-going compliance annual costs of $1,500 to
23
$2,000.
24
$1,500 to $2,000?
25
A
Still
What data did you use to reach the conclusion of
Just because this is a sensitive customer
Exh. A
Page 148
1
service area and it is potential state regulation, that
2
companies would use a day of professional time a year to
3
make sure they were doing what the law is currently
4
because things change.
5
you may find certain parts of it are not to your suit
6
so --
7
Q
8
If you were to get this through,
And so the $1,500 to $2,000 is based on
approximately one day per year?
9
A
Right.
10
Q
Okay.
11
12
13
14
15
And what would need to be done in that
day?
A
To review what the company is doing and to
compare it to what the current regulation is.
Q
And did you do any tests or studies in reaching
that opinion?
16
A
No.
17
Q
Refer to any literature or published studies?
18
A
No.
19
Q
Discuss this with any of the 17 companies with
20
whom you spoke?
21
A
No.
22
Q
Okay.
23
So this is, again, based on your
experience?
24
A
Yes.
25
Q
Okay.
Underneath that, you've got -- and this
Exh. A
Page 149
1
is back on the transactional notice -- Costs that are
2
discretionary but good business practice.
3
order processing system to calculate the sales tax
4
amount.
5
not require, right?
Modify the
Now, this is something that the regulations do
6
A
That's true.
7
Q
And is it your understanding that the
8
regulations are actually targeted at Colorado's use
9
tax?
10
A
11
know.
12
Q
13
I'm not a lawyer so I don't -- I mean, I don't
So you did not estimate what it would cost for
companies to comply with --
14
A
No.
15
Q
-- to estimate the use tax?
16
A
No.
17
Q
So you estimated what it would cost companies to
18
give customers an estimate of their sales tax?
19
A
Yes.
20
Q
All right.
And is your estimate based on a
21
retailer providing an estimate of sales tax for every
22
sale or only if a customer inquires?
23
A
I assumed for every sale.
24
Q
And why did you make that assumption, as opposed
25
to providing it if a customer made an inquiry?
Exh. A
Page 151
1
Q
And what data did you consider in concluding
2
that this is going to be in the 5- to $10,000 range to
3
provide those estimates?
4
A
Well, I think there are other things that come
5
into it.
You know, there may be some systems resources
6
that you need.
7
definitely not charging Colorado sales tax so maybe you
8
have to go to a service, Vertex or Taxware, some service
9
and buy that.
For example, you may not be -- we are
You know, maybe you have to learn more
10
about Colorado's approach to taxation, whether it's on
11
categories or not, as some states are.
12
while this is good practice, I think there are some
13
potential issues that you kind of have to play through if
14
you're the retailer to think those things out.
15
Q
So I think that
Would a software provider like Vertex or Taxware
16
already provide the categories of goods that would be
17
subject to taxation?
18
A
Yes.
19
Q
So if a company went with an external vendor,
20
that's not something they would have to do themselves?
21
A
Right.
22
Q
Of the 5- to $10,000 cost estimate you made in
23
this category, what percentage of that would be
24
attributable to some sort of external software, like
25
Vertex or Taxware?
Exh. A
Page 152
1
A
I don't, I don't have an estimate there.
One of
2
the concerns I have about calculating sales tax is that I
3
don't have anyplace to put it in the system so if I
4
wanted to refer back to it.
5
it's a state I have nexus in and I'm calculating it, when
6
I tell the customer the merchandise is this, the services
7
is this, the shipping and handling is this, and the sales
8
tax is this, I'm saving all those pieces and I'm saving
9
the sales tax in a field.
See what I'm saying?
If
In this case, I'm not
10
collecting it and so I don't have anyplace to put it.
11
I'm envisioning we're going to have to create a place to
12
store that so that, you know, I know what I've told the
13
customer from a customer service point of view because
14
the next person that touches the customer when they call
15
back, we want to know what they told them.
16
is that.
17
tax module or service.
18
19
Q
So
So part of it
Part of it would be if we need an outside sales
Okay.
Did you do any tests or studies in coming
up with your 5- to $10,000 range on this cost?
20
A
No.
21
Q
Did you refer to any published literature?
22
A
No.
23
Q
Did you discuss it with any of the 17 companies
24
25
with whom you spoke?
A
No.
Exh. A
Page 154
1
A
No.
2
Q
Okay.
3
Did you attempt to get quotes from Vertex
or Taxware as to what they charge for their software?
4
A
No.
5
Q
And why not?
6
A
I felt I wanted to create a placeholder here
7
for, as I said this morning, a number that this
8
represented, and I think this has a fair number of
9
unknowns in it.
I mean, companies that aren't Vertex --
10
or users, and there's a lot of people that aren't, now
11
we've got to buy a license.
12
$10,000.
13
Q
14
15
16
17
18
It's far more than $5,000 or
So it varies by company.
What would it cost to buy a license for Vertex
or Taxware?
A
Depends on the size of the company.
You know,
it could be 30- or 40,000.
Q
And would 30- or 40,000 be for a large company
or a small company?
19
A
I say a moderate sized.
20
Q
And for a company who didn't already use Vertex
21
or Taxware or a similar product, as I understand it,
22
their cost for modification would be much greater than
23
the 5- to 10,000 that you've estimated; is that right?
24
A
I would expect so.
25
Q
Let's take a look at Exhibit 11, if you would.
Exh. A
Page 155
1
This is one of the earlier drafts of your report, and if
2
you would take a look at page 5.
3
this page, you estimate the cost for providing sales tax
4
information to be $20,000 to $25,000.
At the very bottom of
Do you see that?
5
A
Yes.
6
Q
How did you come up with the 20- to 25,000
7
8
9
number?
A
Again, as I said this morning, I don't know when
this report was generated.
My approach has been to put
10
that number in -- put a number in early that it
11
represented, whether you call it a strawman or a
12
placeholder or something, and then try to improve it.
13
Q
And what did you do between your initial
14
estimate and your final estimate to improve the number
15
and arrive at 5- to 10,000?
16
A
Well, what I chose -- originally, I was thinking
17
about including Vertex, and then I get into, well, is it
18
a small company, a big company, a moderate-sized company,
19
so I just chose to sidestep that issue and represent it
20
as a true cost, a smaller level.
21
a picture by size of company what the costs are going to
22
be, but I think they would vary depending on the
23
conditions.
24
25
Q
I'm not trying to build
For a company that already has Vertex or Taxware
or a similar product, what would you estimate that their
Exh. A
Page 156
1
cost would be to provide the sales tax information to a
2
customer?
3
A
I would say there's still the discovery process.
4
I would guess -- not guess, but I would think there would
5
still be 3- or $4,000 of costs.
6
Q
And what do you base the 3- to $4,000 on?
7
A
A couple days work.
8
Q
And what would need to be done in those several
9
days?
10
A
Well, I think the fact that there's a lot of
11
interpretation here.
12
discovery process.
13
computation and they say they can do it in 20 minutes --
14
I'm skeptical of a lot of things vendors say, so I would
15
want to go through that whole process and see what do I
16
have to do, what do they have to do, and what part of
17
this does it answer and so forth.
18
19
Q
I think you have to go through that
Just because somebody offers a
And so we've got 3- to $4,000 for a company who
already has the software to modify it.
20
A
If the vendor's software can do it.
21
Q
Right.
22
A
Yeah.
23
Q
And then we have 30- to $40,000 if someone has
24
25
to go out and license the software for the first time.
A
Right.
Yes.
Exh. A
Page 157
1
2
3
4
5
6
Q
So I'm wondering how you took those two numbers
to get to 5- to 10- in the middle.
A
Because I thought it was on the low end of the
range, and I think it's reasonable.
Q
Okay.
Let's go to Exhibit B, which is the
annual purchase summary.
7
A
In the final?
8
Q
Yes, please, in Exhibit 1.
9
Under Subparagraph
1, the last full paragraph, it talks about there are two
10
potential sources for the detail order information, the
11
operational order processing system and the direct
12
marketing system.
13
between the two systems?
Can you explain to me the difference
14
A
Are we right here?
15
Q
Yeah, exactly.
16
A
Well, we talked this morning -- I think it was
17
this morning -- that, you know, the system, the part of
18
the system that we use for the call center to take the
19
order, service the customer, that's what we call the
20
operational part of it.
21
marketing part of it, in other words, if they were using
22
the same data, but formatted and analyzed differently
23
for, say, the RFM.
24
operations.
25
Q
The direct marketing is the
So it's the marketing versus the
And do most retailers have both, the operational
Exh. A
Page 162
1
Q
All right.
On page 3 of Exhibit B, we have
2
Costs of Initial Systems Modifications, and you have
3
Company internal development costs $8,000 to $10,000,
4
representing 175 to 225 hours.
5
computer programming and management time?
Does that represent both
6
A
No, just programming.
7
Q
Just programming alone --
8
A
Right.
9
Q
-- would be the --
10
A
Management time I think we included later.
11
Q
Okay.
So just the mechanics of writing the
12
software code to separate out the Colorado purchasers in
13
your opinion would take 175 to 225 hours?
14
A
Right.
15
Q
And on what data did you base that particular
16
17
conclusion?
A
Well, I drew out all the steps, thought about
18
what it would typically take to do those.
19
before, I think that more than 50 percent of it is
20
design, so I thought that was a reasonable estimate based
21
on working with vendors for 40 years.
22
23
Q
As I said
And did you do any specific tests or studies to
come up with that estimate?
24
A
No.
25
Q
Refer to any literature or published studies?
Exh. A
Page 163
1
A
No.
2
Q
Discuss that with the 17 companies with whom you
3
spoke?
4
A
No.
5
Q
Have you had similar experience with clients who
6
7
have attempted to create a similar report?
A
All the time -- not a similar report, but create
8
a new type of reporting system operating off these same
9
files.
10
11
Q
And is the 175 to 225 hours consistent with what
you've seen for other clients?
12
A
Yes.
13
Q
When you've had other clients who have attempted
14
to create a new reporting system from existing data, what
15
kinds of reports are they trying to create?
16
A
It can be merchandising reports, you know, take
17
this same data and tell management, you know, what's
18
being bought and try to combine it with other internal
19
data.
20
that aren't in necessarily the financial part of the
21
system.
22
purposes.
23
like this, you have to, again, you know, define what the
24
objectives are and do the design work and get the
25
sign-off, and you may or may not do that, may or may not
You know, we have reporting systems for finance
They want to sample this data for other
So anytime you get into reporting a system
Exh. A
Page 164
1
proceed.
Then you've got to program it and test it and
2
so forth.
3
Q
Now, you also estimate if a company were to do
4
this by using an external marketing or software vendor it
5
would be $15,000 to $20,000, representing 100 to 135
6
hours.
7
you did for the internal development costs?
And your estimate there, does that mirror what
8
A
It would be as similar as you can make it.
9
Q
Okay.
10
time?
11
A
No.
12
Q
Okay.
Design and programming and testing?
13
A
Yeah.
Right.
14
Q
And, again, this number was based on your
15
So it only includes the programming
It would be including their design time.
experience?
16
A
Right.
17
Q
Did not perform any tests or studies?
18
A
No.
19
Q
Didn't refer to any literature or published
20
studies?
21
A
No.
22
Q
Didn't discuss it with the 17 clients?
23
A
No.
24
Q
And have you had clients who have used external
25
vendors to create reports that would be similar to the
Exh. A
Page 165
1
2
3
4
report required by the Colorado regulations?
A
Yes, not necessarily financial, but, again,
various forms of marketing, merchandising reports.
Q
And did you refer to any particular client files
5
in creating either the internal or the external
6
estimates?
7
A
No.
8
Q
Would it be any different if the external vendor
9
It comes from experience.
already had the data?
So if the external vendor already
10
had all of the data that they needed to crunch it in the
11
right way as to create this report, would the cost be any
12
different?
13
A
I'm assuming that they'll have most of the data
14
because it's marketing data that we're sending monthly or
15
quarterly, so it's really the design of the reporting
16
system and the controls and so forth.
17
Q
All right.
So the external programming costs of
18
15- to 20- estimate that the -- sorry.
19
over.
20
Let me start
Your external programming estimate of 15- to
21
$20,000 assumes that the external marketing or software
22
vendor already has the data; is that right?
23
A
Or most of the data, yes.
24
Q
Okay.
25
And the costs of these internal systems
modifications are not costs that have to be repeated
Exh. A
Page 166
1
annually, right; these are one-time costs?
2
A
That's true.
3
Q
Okay.
And we're back on Exhibit 1, Exhibit B to
4
your report, and under "C", you've got, Annual Costs to
5
Produce the Annual Purchase Summary Mailing, and you've
6
got several bullets here that factor into the annual
7
mailing cost.
8
many businesses have less than $100 average order."
9
A
10
Q
The first one I have is, Size of the 12-month
buyer --
11
The first is, "Average order in dollars -
12
13
14
Sorry.
It's the second bullet.
How do you know
that the average order is less than $100?
A
Just from experience, I know that many
businesses, more than a half are below $100 per order.
15
Q
Okay.
16
A
I'm sure there are.
17
Q
-- publish that data?
18
A
Sorry.
19
Q
But you didn't refer to any particular studies
20
And are there published studies that --
in forming this opinion?
21
A
No.
22
Q
The next bullet states that, "The number of
23
times a customer purchases annually is often less than
24
2 times on average."
25
true?
How do you know that that is
Exh. A
Page 167
1
2
A
By looking at my clients' data and understanding
repeat buying patterns.
3
Q
4
data?
5
A
No.
6
Q
This is based on your broader experience?
7
A
Yes.
8
Q
And is there published literature that would
9
10
11
And did you look at any particular clients'
reflect the average number of customer purchases?
A
I don't know.
I assume there might be, but I
don't know.
12
Q
And you didn't refer to that?
13
A
No.
14
Q
Is it the same for both catalog and Internet
15
retailers in terms of the average number of purchases?
16
A
No.
17
Q
What is the difference?
18
A
Again, this is a generalization, but Internet
19
shoppers are often less apt to repeat purchase.
20
very opportunistic on price and so they may be more often
21
one-time buyers than catalog.
22
23
Q
They're
And in terms of the average dollar order, does
that vary between catalog and Internet retailers?
24
A
Yes, it does.
25
Q
What is the difference?
Exh. A
Page 168
1
2
3
4
5
6
7
A
It's all over the place.
Internet is less than catalog.
Q
Okay.
Many times it's less,
Sometimes it's higher.
And so then you used $100 average orders,
somewhere that falls in the middle?
A
No.
A $100 average order is a pretty healthy
order for any Internet or catalog.
Q
Okay.
And going back to the number of times a
8
customer purchases annually, why did you use an estimate
9
which, as I understand it, is more reflective of catalog
10
11
12
13
retailers than Internet retailers for your opinion?
A
Well, because if Internet were less than two,
then I'm still conservative with what I'm telling you.
Q
Okay.
The final bullet point here says, "Most
14
businesses experience that 50% of all first time buyers
15
are opportunistic and never buy again."
16
both catalog and Internet retailers?
Is that true of
17
A
Yes.
18
Q
How did you arrive at the 50 percent number?
19
A
It's a number that I've learned for 15 or more
20
years looking at customers' marketing files and
21
results.
22
Q
23
And is that something that would be reflected in
the published literature in your field?
24
A
Possibly.
25
Q
But you didn't rely on any published
Exh. A
Page 169
1
literature --
2
A
No.
3
Q
-- for that number?
4
A
No.
5
Q
You conclude that 20 percent of Colorado
6
purchasers will buy $500 or more per year from a
7
particular retailer.
8
9
10
11
MR. SCHAEFER:
How do you know that?
says.
Objection.
That's not what it
It says less than 20 percent.
BY MS. SCOVILLE:
Q
Okay.
Let me start over.
You conclude that
12
less than 20 percent of Colorado purchasers will buy $500
13
or more a year from a particular retailer.
14
know that?
15
A
How do you
Just taking the $100 average order as being a
16
higher than average order in direct businesses and the
17
fact that they're going to buy two times or less on the
18
average, they won't reach the $500.
19
customers' results over the year, if you have somebody
20
that buys $500, you've got a really premium buyer.
21
22
Q
25
And did you do any particular studies to
determine that 20 percent is the right percentage?
23
24
I know looking at
MR. SCHAEFER:
A
Same objection, but go ahead.
Less than 20 percent.
conservative number.
I think that's a very
I think it could easily be 10 to 15
Exh. A
Page 170
1
because it will be a premium buyer.
2
BY MS. SCOVILLE:
3
Q
So it could be as low as 10 percent of
4
customers?
5
A
Yes.
6
Q
Okay.
Did you do any studies yourself to
7
determine what percentage of folks would buy $500 or
8
more?
9
A
10
No.
I just, as I said, know that from working
with clients' results and experience.
11
Q
And did you refer to any published literature?
12
A
No.
13
Q
Did you discuss that with the 17 companies with
14
whom you spoke?
15
A
No.
16
Q
Is published literature available in your field
17
that would talk about the percentage of buyers who spend
18
more than a certain amount?
19
A
There are just general surveys, which are hard
20
to apply because they often take in small start-up
21
catalogs and very large catalogs and they average things
22
together and they end up not sure how to apply the data.
23
So could be, but --
24
25
Q
And did you try and estimate different
percentages based on small start-up catalogs versus
Exh. A
Page 171
1
larger, established retailers?
2
A
No, because the average price point -- the
3
average selling price point of the products determine
4
average order.
5
look at a business that has, say, a $100 average order,
6
you generally see -- and they're not doing a lot of price
7
promotions, you generally see that they have 1.2, 1.3
8
items on an order.
9
number -- as retail price goes down, the number of items
In other words, if you have -- if you
Okay.
So as price goes down, the
10
may go up, it might go to two or three, but the average
11
order is going to be -- also changes because the average
12
price point is different.
13
by company merchandising kind of analysis you have to
14
do.
15
Q
So it's, you know, a company
And so what you did was to create an average,
16
then, based on all types of merchandise and all kinds of
17
retailers, right?
18
A
Yes, something I felt was conservative.
19
Q
And is there any difference between catalog and
20
Internet retailers in terms of the percentage of people
21
who will spend a certain amount?
22
A
I don't think there will be.
I think the
23
Internet, depending on the average order, average order
24
value and the number of times that people buy, repeat
25
buy, that my opinion would be that they will end up under
Exh. A
Page 175
1
A
Well, because when it's -- it's not a metrix
2
that a lot of companies focus on.
We're going to go back
3
to what we said this morning.
4
buy hardware.
5
that, and that has a -- when you're using it for some
6
number of years, it has a cost per hour.
7
have a people cost, the operational cost, which we
8
haven't delineated.
9
$25,000 a year to run a computer system.
People buy software, they
They may lease that or they may purchase
And then you
You know, we may be paying somebody
So there's some
10
cost per hour for the hardware, software and people, and
11
it's going to vary by company again.
12
Q
Okay.
You go on to estimate that a marketing
13
services bureau would charge a minimum setup charge and a
14
cost of $2.00 per 1,000 names processed.
15
to see if the $200 to $300 is included when you reach a
16
.002 per piece cost or if those are two separate charges.
17
A
And I just want
It's going to vary by the marketing service
18
bureau.
19
separate.
20
Q
Okay.
21
A
Right.
22
Q
-- .002 per piece cost?
23
A
Right.
24
Q
Did you talk to any marketing service bureaus
25
I feel most of the time they're going to be
So it's 2- to $300, plus --
about what they actually charge for this kind of service
Exh. A
Page 176
1
2
when you prepared this report?
A
Those kinds of numbers are in quotes that we get
3
like we talked this morning.
4
very commoditized.
5
You know, it's in some ways
passing, things like that.
It's the number of records you're
6
Q
So these would be very standardized --
7
A
Right.
8
Q
-- and not very subjective charges?
9
A
They are pretty low at .002, right?
10
Q
Right.
11
A
Right.
12
Q
Your next bullet point talks about mailing
Pretty much so.
Plus the 2- to $300, right?
13
service costs, and you have a minimum set-up cost of $100
14
to $200 bundled into the per piece cost and a variable
15
cost for 500 to 1,000 customers mailed, and then based on
16
your experience you expect that cost to be $1.25 to $1.50
17
per piece.
18
an assistant who had contacted some printing companies?
19
20
21
A
And you mentioned earlier today that you had
Uh-huh.
MS. SCOVILLE:
So let's mark these as exhibits.
This will be 12, and this will be 13.
22
(Exhibit Nos. 12 and 13 were
23
marked for identification.)
24
25
Exh. A
Page 177
1
2
BY MS. SCOVILLE:
Q
Actually, let's take these in reverse order, if
3
you don't mind, and start with Exhibit No. 13, which are
4
some handwritten notes.
5
notes that were made by your assistant, right?
And it looks like these were
6
A
Yes.
7
Q
And as I read the notes relating to the
8
Printersmark quote, that this is a price per 500 pieces,
9
right?
10
A
Yes.
11
Q
And he quotes, basically, a total of $400;
12
$45 for the envelopes, $105 for the fliers, $90 for the
13
addressing, $25 for the match mail, and postage of .27
14
times the 500, right?
15
A
Yes.
16
Q
And Printing For Less, their quote came in at
17
$958.93?
18
A
Yes.
19
Q
And Exhibit 12 appears to be some e-mail
20
correspondence from your office manager, and Printing For
21
Less, on the last page of that exhibit, has their quote,
22
right?
23
A
Yes.
24
Q
And what they have done is, if I am reading this
25
correctly, the $958.93 quote would cover 750 pieces; is
Exh. A
Page 180
1
them with what sounds to you like the same job, it's
2
often higher.
3
Q
So that's been my experience.
And is there any variation in your experience in
4
terms of the mailing service cost based on geography
5
across the country?
6
A
There very well could be, but this is such a
7
small cost compared to this total thing.
8
reasonable.
9
company so it's an Internet based printing company so --
10
11
Q
I think it's
Plus, this Printing For Less is a Montana
And what about -- and, I'm sorry, Printing For
Less is Montana?
12
A
That's my understanding.
13
Q
Okay.
14
15
16
17
And what about the Printersmark, where
are they from; do you know?
A
They're here in Richmond, as far as I know.
Yeah, it's a local number.
Q
So you ultimately conclude that the average cost
18
for the annual statement to customers will be $2 to $3
19
per customer --
20
A
Yes.
21
Q
-- is that right?
22
Okay.
And that includes the
minimums and the set-ups?
23
A
Yes.
24
Q
And on what data did you base that number, other
25
than the mailing piece?
Exh. A
Page 181
1
A
Well, one of the big pieces that we don't have
2
in here is what the production run cost is going to be,
3
and another factor is that we know from doing industrial
4
engineering studies for a long time that to generate a
5
piece of paper that people have to do something with,
6
that it can be typically in a range of $2 to $5.
7
thought that was reasonable because you can't -- without
8
knowing the specific individual companies and what
9
percentage -- what these four bullets on the prior page
10
are going to yield in terms of the number of customers,
11
the best that I think anybody can do is to say it's in
12
this range and we think that's conservative.
13
Q
Okay.
So we
You said based on your experience in
14
industrial engineering, the range would be $2 to $5.
15
What kinds of situations included the cost of $2 to $5
16
per customer?
17
A
Well, it's how people use a document that a
18
computer has produced, you know, how many people touch a
19
document.
20
of touches.
21
costs to it.
22
23
24
25
Q
You know, it often has to do with the number
Every time you touch a document you add
And is that something that is published in
literature in your field?
A
I'm sure it is.
I don't -- you know, I can't
tell you what's there.
Exh. A
Page 182
1
Q
But you didn't rely on any of that literature
2
in --
3
A
No.
4
Q
And did you discuss the $2 to $3 per customer
It's just experience.
5
estimate with any of the 17 companies with whom you
6
spoke?
7
A
No.
8
Q
Let's go back to your September 16th draft.
9
have to grab the right exhibit number here.
It's Exhibit
10
No. 9, and if you could look, please, at page 8.
11
sorry, I just told you the wrong page number.
12
it's page 6.
13
I
And I'm
I'm sorry,
Exhibit 9, page 6.
Under Breakdown of Annual Costs, which is
14
underlined near the top of the page, you have, "Our
15
estimate is that on the average it will cost $4 to $5 per
16
customer disclosure with all costs."
17
initial estimate of the per customer cost for the annual
18
notice?
19
20
A
Was $4 to $5 your
That's my strawman, placeholder.
That's what I
thought it would come out.
21
Q
Okay.
22
A
After I got some quotes.
23
Q
So your estimate changed based on the quotes
24
25
And then you moved down from there?
from the mailing houses?
A
Primarily.
Exh. A
Page 190
1
A
It says, "The relevant systems development costs
2
for these steps were also included in Exhibit B."
3
costs are included for developing.
4
5
Q
Okay.
So the
But not in the costs that you've
estimated for the customer information report?
6
A
No, no.
7
Q
The next paragraph talks about the
8
specifications that the Department of Revenue is going to
9
publish for transmitting the customer information report,
10
and you estimate that complying with the Department
11
specifications will add $1,000 to $3,000 to the costs.
12
How did you arrive at those numbers?
13
A
Well, first off, if the Department of Revenue
14
specifies something that retailers don't use generally as
15
software, I felt that we should recognize some kind of a
16
placeholder.
17
purchase a piece of software to do that or a program --
18
you know, maybe change a series of programs that we have,
19
but certainly we've got to respond to it
20
electronically.
21
Q
They would say we'd have to, you know,
So those costs could be less, depending on the
22
software specifications that the Department of Revenue
23
releases?
24
A
Yes.
25
Q
Would that portion of the costs ever be zero?
Exh. A
Page 191
1
A
Potentially.
2
Q
And in coming up with the 1,000 to 3,000 number,
3
did you refer to any literature or published studies?
4
A
No.
5
Q
Discuss that with any of the 17 companies with
6
whom you spoke?
7
A
No.
8
Q
The next paragraph indicates that, "Customer
9
I used my own judgment.
information and purchase information is protected by
10
privacy statutes and the data is typically encrypted when
11
sent between locations.
12
Colorado regulations and could increase costs."
13
was a little bit confused about that.
14
increase the costs?
This is not specified in the
And I
What would
15
A
Encryption.
16
Q
So the retailer company encrypting the data?
17
A
Right.
18
Q
And do the retailers already encrypt any of
19
20
their data?
A
There are a variety of different methods of
21
encryption.
22
from the Department of Revenue and, you know, we don't
23
know how to react to that until we see it.
24
25
Q
We're dealing with something we don't know
Is it possible that depending on what the
Department ultimately specifies that that cost could turn
Exh. A
Page 192
1
out to be zero?
2
A
It's a possibility.
3
Q
The second to the last paragraph on this page
4
says, "Companies will spend hundreds of hours of general
5
management, marketing, call center, IT and accounting
6
time interpreting and implementing this regulation in
7
their company business environment and systems."
8
go on to estimate that it will take between 150 and 200
9
hours or between $7,500 and $10,000, separate and apart
10
from additional systems costs.
11
And you
the 150 to 200 hours?
12
A
How did you come up with
Well, as we talked about this morning, the types
13
of people, meaning call center, marketing, fulfillment,
14
the general management of IT, that will have to make up a
15
committee that will determine what their company's
16
interpretation of the regulation is, how they're going to
17
need it, and how they are -- you know, what they're
18
determination is for what they need to do in terms of
19
changing what they do.
20
estimate for the number of people and the salaries that
21
we see people paying.
22
23
24
25
Q
I think that's a conservative
And so what was the hourly rate that you used
here for those types of management jobs?
A
Well, I don't exactly remember.
We could divide
it out and see, but I think you'll find it's in the
Exh. A
Page 193
1
ballpark.
2
Q
Well, if we divide $7,500 -- hang on, I can't
3
use my phone, this calculator apparently.
4
we divide $7,500 by 150, you have $50 an hour.
5
A
All right.
If
And that's in line with what I said with the
6
call center training procedures.
7
when you put general management into it and so forth, so
8
if you take the $10,000.
9
Q
So that's pretty low
And in determining the hourly rate, again, you
10
did that based on your own experience; you didn't refer
11
to any published studies?
12
A
No.
13
Q
And in determining the 150 to 200 hours, again,
14
you relied on your general experience and didn't refer to
15
published studies?
16
A
Did not.
17
Q
Or do any studies of your own?
18
A
Did not.
19
Q
Did you talk to any of the 17 companies with
20
whom you spoke about this?
21
A
No.
22
Q
Did you attempt to break down, in terms of the
23
150 to 200 hours, how much of that would be management
24
versus marketing versus call center versus IT?
25
A
No, I didn't.
Exh. A
Page 195
1
comply with the regulations; is that right?
2
A
Yes.
3
Q
All right.
Let's go to Exhibit D.
Your second
4
bullet point on Exhibit D talks about the high cost of
5
losing customers and losing sales, and you include, "We
6
anticipate that this statute's requirement will cause a
7
major percentage of the customers to abandon the shopping
8
cart or stop and call the Call Center."
9
already given the estimate that more than -- or at least
10
I think you've
50 percent of customers will call the call center.
11
A
Yes.
12
Q
Have you made an estimate of how many customers
13
will abandon the shopping cart?
14
A
No.
15
Q
What would a major percentage of customers
16
abandoning the shopping cart be?
17
A
18
percent.
19
Q
I would say somewhere between 25 and 50
And on what data do you base your conclusion
20
that 25 to 50 percent of customers will abandon the
21
shopping cart?
22
A
That a high percentage of the Internet
23
transactions are abandoned because of price or ease of
24
use -- lack of ease of use of the site, and this is a
25
very negative thing.
You're telling the customer that
Exh. A
Page 196
1
after the fact you're going to pay more for that product,
2
and there's no -- you know, it's not going to build
3
sales.
4
Q
It has to lose sales.
And are there published studies in your field
5
that talk about the percentage of Internet transactions
6
that are abandoned because of price or ease of use?
7
A
Yes.
8
Q
And did you refer to any of those?
9
A
No.
10
11
12
I just read them all the time and take
those into account.
Q
And so the 25 to 50 percent is based on your
general experience then?
13
A
Yes.
14
Q
Did you discuss that with any of the 17
15
companies with whom you spoke?
16
A
No.
17
Q
And you haven't done any studies yourself?
18
A
No.
19
Q
You conclude that the regulations will cause
20
retailers to lose customers and sales, right?
21
A
Yes.
22
Q
Do you have any way to quantify how much
23
24
25
retailers will lose?
A
I can't mathematically do it, but I think about
how competitive today's retail environment is and if
Exh. A
Page 197
1
somebody is going to pay -- if a customer is going to pay
2
more from my -- as an out-of-state retailer than somebody
3
in state or someone else, then the person with the same
4
product, but a different price, the lower price often
5
gets the sale.
6
7
MS. SCOVILLE:
question?
8
Could you read back my initial
I'm sorry, I've already lost it.
(The question was read by the court reporter.)
9
10
11
BY MS. SCOVILLE:
Q
So I understand that, you know, this is based on
12
the competitive environment, but do you have any way to
13
quantify?
14
A
No.
15
Q
And you haven't done any studies yourself in
16
that area?
17
A
No.
18
Q
Have you discussed it with any actual
19
retailers?
20
A
No.
21
Q
In your experience working with clients in your
22
company, are there clients you've had who have
23
implemented governmental regulations that have caused
24
them to lose sales?
25
A
Not that I can think, no.
Exh. A
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