Understanding Legal Fees
Good attorneys are not inexpensive; but their guidance is often invaluable. The key to keeping your costs down while still getting great legal advice is to understand how fees are calculated and how you are billed.
How are legal fees generated? Most lawyers bill clients for their time using the following methods:
- Hourly. Billing by the hour (or fraction of the hour) is the most common way lawyers charge for their services. Basically, the "clock" starts when the attorney works on your behalf. (That includes phone calls with you; every time you call you will be billed.) Most attorneys use some form of software or system to help automate the billing process. For example, say you call your attorney to ask a question; he or she makes a note of when the call started and stops, and you are billed accordingly. Some attorneys bill in six-minute increments, others in 15-minute increments, others in 30-minute increments. At the end of the billing period, all the time will be itemized and you will be billed accordingly.
- Flat fee. Some services are provided as a flat-fee; for example, your attorney may charge a flat fee for preparing and filing incorporation documents. In general, flat fee billing is used for relatively common services. If you agree to a flat-fee arrangement, make sure you know which items are included in that fee and which are not. (If you're not sure what those items might be, simply ask, "What services or items are not covered under the flat fee?")
- Contingency. A contingency fee is when a lawyer does not charge for a particular service but is paid a percentage of the outcome (usually one-third, but tends to range from 25% to 40% of the amount of judgment). Contingencies are most often used in lawsuits filed against other parties; for instance, if you are injured while using a product and you sue the manufacturer of that product for damages. If a judgment is not awarded, you do not pay the attorney.
- Partial contingency. Some attorneys bill at a higher rate if they are able to achieve a favorable result. For example, an attorney may charge a flat fee to negotiate a contract, and then receive a percentage of the amount they are able to save the client through successful negotiations. The goal of a partial contingency is to create additional incentive for the attorney to achieve a positive result. (Of course, the argument can be made that the attorney should not need additional incentive, since they are already being paid an hourly rate.)
- Statutory. Statutory fees are established by law; the court will set or approve the fee charged. The most common use of statutory fees is for court-appointed attorneys defending clients in criminal cases who cannot afford an attorney.
Most attorneys who bill on an hourly basis require a retainer. A retainer is money advanced by the client and placed in an escrow account; the attorney then draws funds from that account as services are rendered. When the amount in the retainer account is drawn down to a certain level, the client must add additional funds. (Think of a retainer as the lawyer's insurance that he or she will be paid for their time.)
Funds placed in retainer are almost always refundable if not used.
You can also expect to be charged for the following:
- Document copying
- Long distance calls
- Delivery charges (postage, overnight delivery, etc.)
- Filing fees
- Travel costs
Now that you understand how you will be charged, let's look at ways you can keep those costs down while still receiving great service:
- Be open, honest, and thorough. Lawyers are required to maintain confidentiality (most often referred to as the "attorney-client privilege"). There is no reason to withhold information; doing so is only likely to cost you money later, especially if that information could have been used to prevent a potential problem.
- Understand the billing process. If your lawyer charges $150 per hour and bills on 30-minute increments, a ten-minute phone call costs $75. If you will need frequent but brief consultations, look for a skilled lawyer who bills in shorter increments (or make fewer visits or calls).
- Set up a regular meeting. Instead of making sporadic calls, set up a monthly call or visit appointment. You'll avoid voice mail and wasted time, and by speaking regularly you might head off potential problems before they grow out of control.
- Ask for estimates. Have the attorney provide a written cost estimate; if the final cost is higher, ask why. Some attorneys will also guarantee a maximum cost for certain services; that way you can ensure costs don't spiral out of control.
- Review invoices. Everyone makes mistakes; check for discrepancies or unusually high fees.
- Ask about a payment terms discount. Some attorneys offer a two or five percent discount for paying within a short period of time.
- Do a little research on your own. You don't have to be an expert, but you should know enough to understand the basics of your matter and to ask decent questions. Time is money… instead of paying your lawyer to explain the basics before he or she gets to the "meat" of the issue, do a little research of your own first. Again, you don't have to be an expert – just an informed consumer.
- Ask what you can do to assist or streamline the process. You may be able to gather files and documents or even prepare responses and provide information. And always meet your obligations; never keep your attorney waiting for information.
- Ask about alternative dispute options. Sometimes lawsuits or complaints can be handled through arbitration or mediation, which can be significantly less expensive than the cost of a trial.