Friday, July 23, 2010

Some thoughts on legal fees

It is no surprise that few potential clients with prior experience hiring legal assistance ask about the cost to address their current legal problem. Most understand the complexities involved or they trust the professional. After all, we don’t ask a doctor how much it will cost to address our physical problems, or how much the plumber will charge to fix a leak under the house. Often, it is difficult to provide an exact answer because we don’t have all the facts – and we can’t know the facts until we spend time working on the problem. However, once the problem is reduced to actual tasks, it becomes much easier. For example, a doctor can tell you how much a splint costs even though he can’t tell you which splint he might use until he performs the examination. A plumber can tell you how much a section of copper pipe costs but he can’t tell you how much pipe he will use or how much digging he will have to do until he makes his examination. Likewise, an attorney can provide the prices for mailing, paralegal support, and copying but he won’t be able to tell you how much it will cost to review a contract, much less rewrite it or negotiate it, until he has had time to review it.

Any attorney can quote an hourly rate, but beyond that, the total is unknown at the beginning of the project. (A large law firm may be able to provide a corporate client with a flat rate using cost averaging over many transactions, but a small business using legal counsel on a less than full time basis doesn’t have the wherewithal to support an attorney on a flat fee basis.) As with the doctor or the plumber, an examination is necessary.

Beyond the hourly rate, the client must consider the experience and wisdom of the attorney. Typically, more experienced attorneys have higher rates (within reason) but in most situations, an experienced attorney will be able to complete a project at a lower total cost. Again, using the contract example, an experienced attorney will spot the issues and have language available while the less experienced attorney may need additional time.

There are alternatives you may wish to consider. If you need ongoing services, you may wish to explore “bulk pricing” with your attorney. If the hourly rate is $300, perhaps you could negotiate a full day of services on a periodic basis at $1500 a day. Or, if you would like to have an attorney on-site for a week of work, the rate may drop to $5,000 per week. A half day of mediation services may be $500 per party while a full day is $800 per party. Like any other business person, if an attorney can obtain a commitment of his time, he has less down time and can average his costs over a greater number of hours.

Rates quoted here are examples only. A major downtown law firm may charge $250 per hour for a junior associate while a senior partner may cost $800 or more per hour. Small rural solo practitioners with low overhead may be in the $150 per hour range or may charge flat fees because the work is more routine.

Now no doubt you are doing the math and comparing those fees to your hourly wages. Unfortunately, that comparison does not take into account the expenses of running the business. Remember, revenue minus expenses equals profits. Expenses in running a business include taxes, insurance, licensing fees, office expenses, continuing education, employees, etc. The margins in running a legal practice aren’t as bad as a grocery store or a warehouse club but attorneys don’t just multiply their hourly rate by 40 hours for 52 weeks to determine their take home pay.

If you have a question about fees, ask your attorney. But understand that the answer may be, “It depends.”

It may be legal, but is it right?