Direct Marketing Association, The v. Huber

Filing 71

Amended MOTION to Exclude 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 E1of5, Adler Dep. Exhs., # 6 Exhibit E2of5, Adler Dep. Exhs., # 7 Exhibit E3of5, Adler Dep. Exhs., # 8 Exhibit E4of5, Adler Dep. Exhs., # 9 Exhibit E5of5, 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 J1of3, Keller Dep. Exhs., # 15 Exhibit J2of3, Keller Dep. Exhs., # 16 Exhibit J3of3, 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
[phone]
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