Via Illinois solo Peter Olson’s blog, Solo In Chicago, I came across this post on fee agreement essentials which Olson extracted from an Illinois State Bar Association newsletter. Since my readers frequently ask about fee agreements, I was initially excited to discover a new resource. But my delight soon turned to horror when I read the “recommended” fee agreement clause below:
No Cost Estimate Due to Factors Beyond Control. Client further states that he/she understands that a significant part of what is done in a domestic relations case or other matter is based on what the opposing party does or does not do and upon other factors over which neither the Attorney nor the Client have any control. Such factors, particularly the action or the inaction of the opposing party, may substantially increase the fees and costs involved, and therefore there is no realistic way that the fees and costs can be estimated or controlled.
So, how is this fee clause defective? Let me count the ways. First, from a client’s perspective, the fee clause unfairly shifts all risks associated with the litigation to clients, without giving their lawyers any incentive to minimize costs. No matter the scenario, this fee agreement is a win for the lawyer. In a case that proeeds smoothly, the lawyer will bill fewer hours, but he’ll also work less. Conversely, in a matter where an obstructive opponent runs up the costs with additional motions and hearings, the lawyer works more and bills more. If anything, this agreement rewards lawyers for taking a scorched earth approach since doing so produces more work and generate more fees.
But the fee clause isn’t bad just from a client perspective, but from the lawyer’s perspective as well. By including this kind of fee clause in a retainer agreements, lawyers memorialize their inexperience for posterity. After all, what kind of lawyer holding himself out as an expert in domestic relations is so lacking in ability to estimate costs that he simply throws up his hands and admits defeat?
To figure out how good your lawyer is, give him or her the following test. It only has a single question, so it will only take about three seconds to administer. On the other hand, it will take considerably longer to answer. And it should.
Here it is:
Question One How much will this cost?
That’s it. Five words only, but it’s the whole ballgame. If your lawyer can’t correctly answer it, then you’ve got the wrong lawyer….
Many lawyers have insisted to me that you can’t put a fixed price on litigation. There are variables, they whinge. We can’t control the costs. What if the other side hits us with a bunch of discovery? What then?
What then indeed.
If your law firm knows its business well, then it should know the value of the service it provides. Hiding behind a fear of variable costs is an admission that you don’t really know your business. An airline doesn’t say “there are variables” when charging you for your ticket. And yet headwinds, storms, airport congestion, and overtime can dramatically increase the airline’s cost of a particular flight. But your ticket price won’t change after they sell it to you.
The Red Sox won’t say “there are variables” when selling you a ticket for tonight’s Yankees game. Yet Sox-Yankees games tend to be much longer than other games; plus it’s raining lightly with more weather expected. A longer game, especially one with rain delays, means increased costs for the Red Sox in wages, overtime, electricity costs, and so on. But your ticket price won’t change after they sell it to you.
The Red Sox know their business. The airline knows its business. Does your law firm?
Ultimately, lawyers should strive for the Sheperd standard and provide a definitive cost estimate every time. But if you’re not yet there, here are some ways to get closer to an estimate:
1. Draft up a “case plan” or decision tree that outlines the different phases of litigation and possible directions it might take, depending upon the work involved, and factoring in obstructions from the other side. Once you’ve broken the case up into smaller pieces, you may find pricing easier. Moreover, once your clients have a sense of how much the various pieces cost, they can play a more active role in arriving at a strategy.
2. Develop an estimate that covers certain deliverables – X number of motions or Y number of hearings – or hours. If you exceed those limits, provide the client with a change order, revised scope of work or supplemental services agreement as recommended by pricing experts Ron Baker, Allison Shields and Michelle Golden.
3. Try phased billing, which assigns a price for each task. Litigator David Kaufman wrote an excellent article for the ABA Practice Trends Newsletter describing his experience developing and implementing a phased billing option in his litigation practice.
4. Consult with other lawyers to get a sense of how long a case might take and what they might charge. This is not necessarily an ideal approach (since other lawyers may have different practices, and their own rates may be inflated), but at least you’ll find a working number to play with.
As a final note, I cannot understand why a bar association would endorse this kind of open ended provision. Purportedly, one of the bar’s tasks is to protect consumers, yet the recommended fee clause does the opposite by forcing clients to shoulder all the risk. And the fee clause doesn’t help lawyers either: as noted, it makes them look stupid and further, sets them up for being stiffed. After all, if clients don’t have any idea of how much a case will cost, how can they budget for it?
Finally, ask yourself this: would you ever sign an open ended fee agreement with a service provider? If you wouldn’t do it, how could you demand the same of your clients?