You just received the bill from the lawyers you retained on the new deal your company just did. You open the envelope and think, “Ouch! How did that bill get so high?”
Unfortunately, too many businesses have had this experience at one point or another. What can you do about it?
It’s best not to get the unexpected bill at all. To prevent unpleasant surprises, start preparing before the relationship even starts.
First, choose the right lawyer for the job. It’s easy to see why it doesn’t make sense to hire the $1,000-an-hour Wall Street partner to handle a $500,000 loan or a small, simple acquisition. However, the reverse is also true. Hiring an attorney with a lower billing rate who doesn’t have the necessary expertise or depth will generally cost more in the long run – and may result in a delayed closing or costly mistakes as well. Don’t be afraid to shop around to find the right fit.
Second, choose the lawyer, not just the firm. If you hire a firm based upon the expertise or reputation of a particular attorney, make sure that attorney, and not some colleague you don’t know, will be working on your deal. It is fine for your attorney to utilize more junior lawyers or paralegals to handle simple parts of the project; after all, their billing rates will be lower. But make sure the lawyer you want is heading up the team.
Third, discuss fees up front. Your lawyer may not be able to tell you the exact cost up front, but should at least be able to provide an estimate or range of the likely cost. Ask the attorney what factors will affect where your deal will fall in that range. Consider alternative fee arrangements. Most lawyers charge by the hour, but some may be willing to do the deal for a fixed fee or even accept a more creative arrangement. Don’t be afraid to ask.
Fourth, get it in writing. In fact, lawyers in Connecticut are required to inform new clients in writing of the basis for the calculation of their fee. If you don’t understand, ask for a clarification.
Fifth, require your lawyer to keep you apprised of the cost. If the project is long term and your lawyer will be billing monthly, this may be sufficient. If the project is shorter term and more intense, or if you are not expected to pay until closing, you may have to check in more frequently.
Keep Your Eyes Open
During the course of the engagement, you can take additional steps to keep down the cost. First, monitor the process. Check in with your counsel periodically to ask how the process is going. If your deal takes a turn that requires additional legal work, discuss with your lawyer how the additional service can be provided most efficiently. If the service will entail additional cost, you’ll understand why and be prepared when the bill arrives.
Second, do your part. In any deal, there are tasks that you can do more efficiently than your lawyer. Say you are taking out a loan and the lender requires a schedule of all your existing equipment. Your lawyer may need to advise you on questions that arise, but in most cases it will be much less costly for your company to prepare the schedule.
If you follow these steps and the bill is still too high, discuss the matter with your lawyer right away. Ask for a detailed statement listing the work performed and review it. The problem may be no more than a clerical error. If the bill is accurate, review it to see if you can locate the problem. Did the lawyer perform unnecessary work? Perhaps a lawyer on the team was significantly inefficient at handling a particular task. If you can identify a particular problem in reviewing the bill, chances are the lawyer will be much more receptive to adjusting the fee.
Finally, understand that quality legal work costs money. Your deal lawyer’s time and expertise are likely to prevent more costly problems down the road. Think of the legal bill as an investment in protection from those problems, and expect to pay a reasonable fee for the work.
If you follow these steps, you not only will be less likely to be surprised an unexpected bill, but you’ll make your lawyer happier, too. Your attorney would much rather have a happy client that pays the bill cheerfully than an unhappy one with whom he has to discuss it – and maybe reduce it – later on.
Gary S. Hammersmith is an attorney in the Hartford-based business law firm of Pepe & Hazard LLP. This column is offered for informational purposes only, and is not legal advice. E-mail editor@hbjournal.com to suggest a question.