Many clients prefer the certainty of a fixed fee for legal services. It also has many advantages for law firms so long as they take care in setting their price for clearly defined legal services. That’s where a well-drafted engagement letter is crucial. It helps to ensure you and your client are in agreement as to the work that will be performed for the designated fee. The engagement letter should include the following:
- Define the scope of the work. What work will and will not be included? For example, if you are doing discovery, are there limits on the number of depositions? If you are drafting a contract, are there any limits on the number of drafts? This can be very important if parties try to add issues that weren’t contemplated. You also need to identify what fees or other costs are not included or which ones require client approval.
- Establish change fees. If the scope of the project changes, there should be an hourly or other rate set out to cover it. It is also smart to provide that any changes to the scope must be agreed to in writing by both the attorney and client.
- Have an escape clause. At some point, the change fee is not enough. Where there has been a change in circumstance, you may need a way to terminate the agreement whether you are referring the client to a different attorney or executing an entirely new engagement agreement.
- Set out payment terms. This includes payment due dates, pricing tiers, identifying when portions of payment are deemed earned and providing for withdrawal for nonpayment. It is important to state that work will be done in phases with payment due before the start of the next phase. Also, if you incorporate a nonrefundable fee, keep in mind your state’s ethical rules. They may not be allowed, or you may need to include language in the agreement regarding why the fee is nonrefundable.
- Specify staffing of the matter. Clients may be upset to discover that others will be doing a great deal of work if they expected you would personally handle the matter. Be sure to include language to authorize you to oversee all work and to incorporate work of other attorneys or para-professionals as you deem necessary.
Flat fee billing is growing in use and it’s important for law firms to consider how to incorporate it into their practice. Clients will be appreciative, and it can be very profitable for lawyers. To learn more, read out related posts on How to Set a Flat Fee for Your Legal Services and Talking to Clients about Your Flat Fee.
Using freelance attorneys is a great way to reduce your labor costs and increase your profitability in a flat fee case. For information on how outsourcing can help your firm, read 6 Benefits of Using Freelance Attorneys Instead of Hiring Associates.