Jason Huf, a transactional attorney with a specialty in Middle East law and client in Law Firm Suites’ sublet office space NYC, offers some of his solutions for structuring billing arrangements that even the stingiest clients will pay:
Earlier this week, transactional attorney and client in Law Firm Suites’ sublet office space NYC, Jason Huf, described the difficulty in collecting from legal clients located in the Middle East. After a recent dog and pony show trip to the Middle East, he developed some alternatives to the billable hour model that he puts to good use, especially with clients who tend to have deep pockets and short arms!
The second part to Jason’s article begins here:
Though the prospective client never executed the engagement letter with the required pre-payment for the initial action items agreed upon, it wasn’t a wasted trip to Saudi Arabia.
The experience inspired me to craft several pricing structures that clients have since found attractive, including:
1. Monthly (Flat Fee)
2. Menu System
3. Part-Time In-House Counsel
The key is to all three is flexibility and understanding the client’s needs (and, making sure they fully understand them as well) before finalizing a proposed structure for professional fees.
Here, I will limit myself to cursory descriptions of each one:
1. Monthly Flat Fees
Monthly flat fees are tricky, and are more likely to be successful if entered into after the attorney-client relationship is already well-established. If you have a flat monthly price, even as work ebbs and flows, you will overbill the client one month, and get clobbered the next.
While monthly billing cycles may “even out” over the course of a given year, they may not as well. One way of avoiding this is making sure the agreement is not “all-inclusive”, listing which services are included and, perhaps more fundamentally, which are not.
This can help to generate greater predictability with the work flow, which helps with determining a monthly fee that is more likely to be reasonable for all concerned. Clearly, however, there exists a downside. As work occasionally falls outside of the agreement, a client may lose faith in the value of the arrangement altogether.
Again, these arrangements are, generally speaking, more successful when entered into after the attorney and business client have been working together for some time – they know each other, and the attorney has a more complete understanding of the client’s needs, including work flow and capabilities, including its realistic budget for legal services.
Further, the client is already aware of the value provided to it by its service provider. And, believe it or not, most attorneys actually enjoy giving their best clients something of a break. This gives them a chance to do so.
2. The Menu System
I have already briefly discussed the Menu System and its genesis. This tends to work better for small to medium-sized businesses, especially those that do not often consider entering into heavily-negotiated contracts (which are almost impossible to accurately price in advance).
One of the potential downsides here is that a business client may not opt for all of the legal advice it needs and deserves – it may pass on an item on the Menu simply because the company is in a belt-tightening phase (which, in turn, could cost them even more money down the road or otherwise compromise the company’s position).
Consequently, my Menu System has tended to work best with small to medium-sized businesses looking for work we call “one offs”, rather than long-term clients. Do enough of these one offs over time, and they may decide to become a regular client. For example, for a client establishing a branch office in Abu Dhabi, me performing a few other odds and ends may lead to working on its contractual agreements there and/ or providing local labor law advice.
Individual clients are also likely to find the Menu System attractive. Land owners with shale gas interests in Pennsylvania, or artists, entertainers, athletes, etc. just getting the first real start in their careers, to name some examples, tend to find that their interests and needs are somewhat more expansive than they initially anticipated, and thus perhaps more costly to protect.
The Menu System offers these types of clients an economical opportunity to address those needs on an item by item basis, without losing sight of the overall “big picture” of their interests.
For clients who subscribe to some variation of the menu system, don’t be too busy to go above and beyond as you would for any other client. Alert them to changes in the law that may affect them, and perform other such courtesies.
3. Part-Time In-House Counsel
This is an emerging trend encompassing a proliferation of variations. One variation I like is where an attorney becomes a part-time employee of the client.
Small companies cannot necessarily afford to establish an in-house legal department, no matter how much they may want and/ or need one. For a company whose total assets are, say, between ten and fifteen million dollars, spending one and a half million bucks or more to establish such a department is a non-starter.
On the other hand, farming the functions of in-house counsel out on an hourly basis can also be financially unattractive.
By bringing the attorney on board as a part-time employee, costs are made manageable and predictable without severely restricting the scope of the work. And, the relationship is easily terminable by either party.
From the attorney’s point of view, such an arrangement provides the security of steady, reliable income, which makes managing the financial ebb and flow of his practice easier.
The amount of hours worked, rather than the scope of the work, would have to be negotiated, as would salary (although a part-time employee, the attorney would have to be salaried: don’t think a real pro is ever going to agree to earning thirty bucks an hour working for a company, when he ordinarily bills four hundred).
How much of his own resources (office supplies, support staff, etc) made available to perform the work would also have to be discussed. But, healthcare costs should not be an issue.
The Part-Time In-House Counsel option only works with solo practitioners. Attorneys with partners cannot saunter off to their part-time jobs rather than performing billable work (or, looking for more billable work) for their firms.
Every once in a while, things happen. The attorney will have to work a few hours longer than agreed from time-to-time. If he agrees to be there on Tuesdays, and something happens on a Thursday, he’ll simply have to deal with that. It’s part of the drill, so suck it up, sunshine.
Conversely, the attorney does have other clients. And, they do pay the attorney’s standard rates. They are going to make demands on the attorney’s time, even if it’s Tuesday.
Attorneys must make it clear to their “employer” that they will have to take calls from other clients, and that if nothing is happening on a particular day, it’s okay if the attorney leaves the office for an hour or so.
As is typically the case with contracts, being grafted to the letter of the agreement while ignoring the spirit of it is self-destructive. Both employer and employee in this arrangement need to be flexible, without abusing the other’s flexibility and without being downright dismissive of the other’s position.
This type of arrangement has the potential to work best after the client and attorney have developed something of a relationship and know each other reasonably well. A company on its own may decide to create such a position, collect resumes, conduct interviews, etc. But, I feel the arrangement has a greater chance for longevity if the parties already know each other and the attorney has a hand in crafting the role and contributing to the design of the terms and conditions of service.
The important things to remember when offering any kind of non-traditional fee arrangement are your reasons for doing so: You want to provide your client with the service it needs and deserves in a manner that it can afford. You want to be fair to your client and provide it with value for money. You want to avoid billing conflicts. And, you want to get paid.
I could go on. But, I anticipate that most of you reading this are lawyers – you’re smart, creative, dedicated people. You can figure out your own variations, based on your and your clients’ needs and goals. And, (something I’m sure my fellow attorneys can sympathize with) I’m already at six (6) pages in, and I’m not getting paid for writing this…
Jason Huf is a New York-based transactional business attorney with law offices in NYC and Jeddah, KSA. Through his firm, Jason Huf International, pc, Mr. Huf focuses on commercial, corporate, banking and energy law, with years of experience working in Middle Eastern legal systems. He also has interests in alternative education solutions, contractual matters for certain classes of individuals and trusts and estates law. For more about Mr. Huf and his practice, please visit www.huflaw.com.
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