Deborah Elkins, Dolan Media Newswires
A couple of years ago, a lawyer and his partner went to pitch a client for work on a closely held business dispute. The competition was heavy and costs were a significant concern.
“What are your rates?” one of the client’s representatives bluntly asked. They were high, the lawyer knew, and he knew they were up against smaller firms that presumably had lower rates. His partner jumped in to respond, “It’s not our rates that are important. It’s your total cost of the case that matters.”
Clients say they want competitive rates, but they don’t want to sacrifice the quality of the work or the anticipated results, according to Boston lawyer Russell Beck, who made the pitch. That’s the elusive goal that has spawned myriad “alternative fee arrangements,” such as risk collars, reverse contingency fees and fixed fees.
The core problem, according to Beck, is not the fee structure. So long as the fee is tied to an hourly rate, the lawyer’s incentive is to bill more hours. The core problem is communication between the lawyer and the client, who may have widely divergent views of the case and its associated cost.
Beck has a number of suggestions for addressing the communication problem: Plan early and thoroughly, build an initial budget and revisit and revise the original plan as necessary.
His recommendations are in sync with those released earlier this year by a Virginia Bar Association task force that looked at “best practices” for billing policies for corporate counsel. The task force, coordinated by Richmond lawyers Michael J. Quinan and Cheryl L. Black, looked at billing practices “from both sides of the table,” according to their report.
The initial engagement is the time to establish the framework for communications, starting with the points of contact between the corporation and the outside law firm, the task force says. The parties should provide a list of all attorneys and staff working on the case, and identify their specialization, experience and expertise.
The client and lawyer should discuss their expectations for continued communication — how often and in what form. How often does the client want case reports and status updates? Does the in-house lawyer want a formal written report or an email update, or would she rather you set a conference call to check in?
An engagement letter should outline the scope of representation — whether it’s for a single matter or for ongoing services — and make any necessary distinctions between representation of the organization and representation of individual officers or directors, in order to anticipate potential conflicts of interest.
In “highly-specialized or industry-specific engagements, such as energy or financial services,” where a lawyer is allowed to represent “other industry players” on issues that impact the present client, “the lawyer should consider including a prospective waiver clause” that conforms to ethics rules on common representation, the task force says.
The outside lawyer may have to adapt to billing policies and guidelines already developed by the corporate client. Those guidelines likely will designate the lead attorney as the principal contact with the client, and identify services that are not billable.
How certain costs are handled may vary from client to client and matter to matter, but a number of topics typically come up for discussion. How will the parties handle invoicing for multiple attorneys participating in the same event, such as an inter-office conference or a deposition? The guidelines should address how many lawyers the client is paying for and whether it’s paying at the most senior or junior attorney rate.
Is there an overall fee cap on the number of dollars or hours for a single matter, or a cap for specific services? Clients may want to specify who is doing legal research and how it will be billed. Which telephone calls are gratis and when does the meter start to run on a quick phone call? Who will pay for airfare, car rental, mileage, hotel and meals? Economy, or first-class all the way?
The lawyer will want to consider whether the bill should include “no charge entries” and find out if “block billing” — combining multiple activities into one entry — is anathema to the client.
The task force’s report also identifies a number of alternative billing methods corporate counsel may want to discuss with their clients: flat fee, contingency fee, a “blended rate” for legal providers at varying levels in the food chain, results-based billing, advanced fees and retainers, barter arrangements or a hybrid arrangement that combines billable hours with a monthly maximum cap.
Part of managing the client relationship is knowing how to say goodbye, according to the VBA task force. The billing guidelines should discuss how clients and outside counsel will handle audits, assessments and adjustments. Planning for routine audits is preferable to sporadic, random audits. The parties may want to use a third party to do the audit.
If the lawyer was hired for a specific matter, she should send the client a disengagement letter to formally close out the representation, separately or with the final bill.
