SHOULD YOU CHARGE BY THE CLOCK?

Hourly rates have been a staple of law office invoices for decades. Still, some attorneys are finding, in a market dominated by a flagging economy and demanding clients, the once sacrosanct procedure of charging by the clock isn’t always the preferred way of doing business. Should you switch? Should you stay? A few options from the experts can help guide the decision.

Consider your options

Christopher Wirken, vice-chairman of the Kansas City Metropolitan Bar Association’s Solo and Small Firm Committee, is not a fan of flat fees. “If they’ve got a free lawyer because they’ve paid a flat sum, then there’s no risk for them to keep going,” he says. Photo by Matt Frye

While hourly rates may be traditional, that is changing as value-based constructs emerge nationwide. Allison Shields of New York-based Legal Ease Consulting said hourly rates can create tension in attorney-client relationships as invoices come under greater scrutiny by money-conscious clients.

“It sets up the idea that as a lawyer, the service that you are providing is time as opposed to selling your expertise, selling solutions or selling peace of mind,” she says.

Package deals

Flat rates can be set in a number of ways. The most obvious option is to provide a full suite of services to the client.

“You can package or bundle services together for a fixed fee, as opposed to separating everything where it is charged by the hour,” Shields says. “Regardless of how you actually bill, always look at the value that the lawyer brings to the equation.”

Unbundle services

The alternative to bundled services is a cafeteria-style approach. Clients may only need an attorney to review a given document or handle a certain aspect of a case. Such piecemeal work will both bring in business and make your services affordable for clients.

“Typically, it’s for a client who can’t pay for an entire matter,” Shields said. “Instead of hiring a lawyer to defend you for the whole thing, you just hire them to take depositions for you.”

Beware open-ended commitments

Not everyone thinks hourly rates should be abandoned so easily. Christopher Wirken, a Kansas City general litigation attorney at the Wirken Law Firm, said he’s wary of flat-fee arrangements that can leave litigants with little incentive to settle and attorneys with no means of escape should a case drag on endlessly.

“If they’ve got a free lawyer because they’ve paid a flat sum, then there’s no risk for them to keep going,” said Wirken, who often handles family law matters. “Even in hourly rate cases I’m sometimes flabbergasted at how both parties will spend until there is nothing left to fight over as opposed to giving the other side a red cent.”

Pay as you go

A common problem with fixed fees is that often an attorney may not know how difficult a case will be when he or she begins work on it. Hence pricing can be a challenge without an hourly rate to set the tone.

A chronological staging of services can help alleviate this problem.

“Instead of saying, ‘I’m going to charge $2,500 to defend you on this DWI case,'” Shields says, “I would say, ‘I’m going to charge you a fixed price for the arraignment, then we’ll figure out what the prosecution has in terms of evidence and what the charges are going to be, and I can tell you how much it’s going to cost to negotiate a plea bargain. If the prosecutor doesn’t accept, then I’ll tell you how much it will cost to try the case.'”

Arrange for bonuses

Robin Rolfe, a New Jersey-based legal management consultant, notes there are a variety of ways to structure compensation. Some clients will even agree to pay a bigger tab if settlements come in by a certain date or within a set price range.

“In bigger organizations, there are frequently agreements on value billing or incentives being paid for better results,” she says. “Companies set the standards of what they expect, pay a fixed fee for what the representation is worth, and there are variables for success rates.”

Be innovative

Wirken, who is vice-chairman of the Kansas City Metropolitan Bar Association’s Solo and Small Firm Committee, says attorneys can protect themselves from fixed fees that evolve into endless commitments.

“There is a fellow I know who charges a flat fee for the first 90 days in a divorce action, which can become an incentive to get that case done in that period,” he says. “After 90 days, it switches to an hourly.”

Get a replenishing retainer

Often attorneys will make the mistake of taking too small of a retainer upfront, meaning time that could be spent preparing a case is wasted hounding a recalcitrant client for cash.

Instead, Shields recommends a replenishing retainer.

“Every month when you send a bill, the client replenishes it so you’ve always got that same $10,000 in reserve,” she says. “Then, on the last bill you refund whatever is left.”

Discount your rate

Some lawyers are leaving hourly arrangements in place while trying to draw in clients with promises of reduced fees for more work. While it’s a viable option, Rolfe warns that attorneys who try this route may find clients won’t respond well once the fire sale is over.

“Nobody is quite certain how that will play out over time, but essentially it’s just reducing your rate,” she says. “I can’t imagine clients coming back a year from now and saying, ‘We’d really like to pay you 100 percent for what we’ve been paying 80 percent for over the past year.'”

Be sensitive to experience issues

Some large firm clients are becoming unhappy about how much of their hourly bill is being spent on newer lawyers instead of senior partners. The feeling is that inexperience can cost time – and money.

“If they’re writing a motion for the first time, it’s going to take them a lot longer to do it because they don’t have that level of experience,” Rolfe says. “Clients are saying ‘I want someone who can do it in a half an hour rather than two-and-a-half hours.'”

Use blended rates

One solution to the associate versus partner billing dilemma is blended rates.

“If they’re anticipating 25 hours on something,” Rolfe says, “the partner’s rate is $400, the associate’s rate is $200. The blended rate is going to be $300 or $325.”

Stay hourly

While non-hourly rates are becoming more popular, there is no one right way to bill, Rolfe says. If the newer methodologies aren’t appealing, there is always the old standard.

“The hourly rate assumes you are going to get paid for every hour you’ve worked, and that’s nice because, whether you get results or not, you get paid and at a rate that you set,” Rolfe says. “It’s your value as you view it, not from the client’s perspective.”

Make it clear

However you decide to bill, clarity is vital. Shields says any arrangement should be formalized in the engagement letter or retainer agreement.

“The biggest thing for me is talking to the client about their expectations upfront and then communicating the value of what the lawyer brings to the table while making sure it’s all documented,” she says.

“Whatever the fee structure is, you have to make sure that it’s very clear in writing for the client so that they understand how and when they are going to be billed.”