Last week, I posted about a recently released ABA Opinion 08-451 on the ethics of outsourcing. At the time of the post, I didn’t have the opinion and griped that the ABA would issue a decision of such potential consequence and fail to make it publicly available. In the absence of the decision, I relied on a news summary which suggested that mark-ups on contract lawyer fees might not be permissible in some circumstances.
The opinion has since been made available. You can access both the actual ABA decision as well legal research and writing expert Lisa Solomon’s extensive analysis at her Legal Research and Writing Pro blog. On the issue of mark-ups, Lisa explains that lawyers may include a surcharge on contract lawyers’ fees, so long as the overall fee is reasonable and the costs are billed as legal fees, rather than disbursements (i.e., expenses). Where contract lawyer fees are billed as disbursements, the hiring firm is generally prohibited from marking up the cost, except to recover associated expenses, such as supervisory costs and a pro rata share of overhead, such as office space. The opinion adds that where contract lawyers provide work offsite, it is unlikely that any overhead costs would be incurred.
Lisa applauds the ABA’s decision, and now that I’ve been able to actually read it (yes, ABA and bar commissions, some of us actually read your opinions!), I agree that the opinion helps rather than hurts solo and small firm lawyers. Not only does the opinion unambiguously permit lawyers to mark up contract lawyer fees, but by making a distinction between disbursements and legal fees, the decision addresses one of my original concerns: the substantial mark up of $30/hr contract lawyers who sometimes perform tasks that aren’t (in my view) properly classified as legal work. As I read the ABA decision, these costs would not enjoy the benefit of the mark-up unless the firm’s retainer agreement permits it to add a surcharse to disbursements. At the same time, by allowing lawyers to earn profit from contract lawyers performing real legal work, the ABA decision gives lawyers incentive to outsource, which frequently results in clients receiving better quality work at a lower cost.
By the way, if you are interested in building a contract lawyering practice, Lisa’s Legal Research and Writing Pro site (and related products and coaching service) is the best, and indeed only place to start.