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LawBiz® TIPS – Week of January 8, 2013

LawBiz(r) newsletter

This week, I'll be traveling to New York to speak with Lexis-Nexis at their special event. I will host a breakfast on Monday, January 14th at about 9 a.m. If you're interested in joining me, please contact me directly at and we'll discuss details. Hope to see you next week.

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Can Matters Billed on Alternative Fees Be Budgeted?

In a previous column we discussed the implications of a client refund request when a matter is billed using an alternative billing method, such as a flat fee. Other alternative methods, of course, could be a blended hourly rate, a contingent or percentage fee, a flat fee or some combination of these and other approaches. No matter what alternative is used, the best way to avoid a refund request is by developing a budget at the start of an engagement. Such a budget is a valuable discipline that can help lawyers focus on the task at hand and communicate regularly with the client - a tactic that can support a good working alternative fee arrangement.

A budget tied to alternative fees can only be an estimate of what's going to happen, but it does help the client understand what to expect. The key is not just preparing the budget, but involving the client in the preparation. The client should also formally approve the final budget. Without client buy-in, the process is meaningless. Creating an effective budget using alternative fees epitomizes this kind of collaborative process. Effective communication to clarify the client's objectives should define four crucial budget parameters: terms, time, money and form.

  • Terms. Clients should be given specific fee alternatives and made to choose one. Being proactive avoids having the client fixate on fee alternatives that may be unworkable.

  • Time. Err on the side of caution and be sure to build in more than adequate time. Most clients will be less concerned with exact time and more concerned about avoiding surprises.

  • Money. Clients should have in mind how much money they want to spend to resolve a problem. It makes no sense to plan for expensive litigation if a settlement for a lesser sum is more practical.

  • Form. Providing budgets and budget communication in a format that's difficult for the client to use simply defeats the collaborative nature of the process.

When using alternative fees to budget for an entire matter, such as a lawsuit, there should be different budget milestones tied to success. The budget can be for the entire case, or just to that point in the litigation where, if appropriate after a certain amount of discovery, a motion for summary judgment may succeed. The engagement goal is tied to that probability, as a success bonus can be if the firm has stayed within budget to get to that milestone. Similarly, there should be provisions for approaching the alternative fee if success is less than complete. Different parameters define different success outcomes. The key is to define these beforehand, to build the kind of trust and agreement between lawyer and client that makes a refund request unnecessary. A budget is the best tool for both sides to reach the desired result at the appropriate cost.

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Can Matters Billed on Alternative Fees Be Budgeted?

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