In addition to results, the client’s expectations about how the engagement will proceed should be explored. These might include expectations about frequency and method of communication, staffing and more.
Once outcomes and expectations have been defined, it is the lawyer’s job to manage the client’s expectations and to advise the client of the likelihood of achieving the desired outcome. The lawyer should also provide potential alternatives that might achieve at least some of the client’s goals if the client’s desired outcome or expectations are unrealistic.
Another important part of the initial consultation is defining the scope of work the lawyer or firm will perform in order to reach the client’s stated goals and expectations and discussing how the scope of work affects the fee.
Getting Clear About Scope
Scope creep is one of the most common causes of friction between lawyers and their clients under alternative fee structures. It often occurs because of a lack of understanding between the lawyer and the client about what the engagement agreement includes. Lack of specificity about scope creates unnecessary confusion or discord with clients who may expect the lawyer to perform work the lawyer did not anticipate or who do not understand that they would be billed for specific tasks, which could derail the engagement.
The initial consultation should also specify the assumptions upon which the client’s expectations and the lawyer’s scope and fee projections are based and identify the factors that could affect the outcome or the scope of the work. It is incumbent upon the lawyer, who has the experience in these matters and is in a better position to anticipate the potential obstacles that could arise that might require additional work to reach the client’s goals, to bring them to the client’s attention and to discuss how they might be handled if they should arise.
In addition to covering the work that is included in the representation, it is often advisable to enumerate what is not included in the representation. For example, in a litigation matter, do the engagement agreement and the fee include working on any appeals, or are appeals excluded from the initial engagement agreement and subject to an additional fee? Lawyers and clients may have very different expectations, so detailed discussion is important, and these details should be put in writing in the engagement agreement.
If sufficient information is not available to fully identify the scope of the work or the fee for the entire engagement at the time of the initial consultation, an investigation may be necessary. A fee can be quoted for conducting this investigation, which might include gathering evidence and documentation, interviews of witnesses or other key players, document review, consultation with experts and identification of, and research into, opposing counsel and parties, if appropriate. Once the investigation is complete, further discussion about scope can occur and the fee can be set for the remainder of the engagement (or the next stage of the matter).
Staged Pricing and Supplemental Services Agreements
In some cases—for example, in complex litigation—it may not be possible to fully anticipate the scope even after an initial investigation. In those cases, staged pricing can be employed. Staged pricing allows the lawyer to anticipate the work that needs to be done at the following stage based upon what has gone before and to price each stage appropriately. The stages should be fully outlined for the client at the initial consultation, along with a clear explanation of when and how pricing will be set at each stage.
Some matters are inherently more unpredictable than others, but almost any legal matter can encounter unexpected bumps in the road. Although minor changes should be anticipated by any alternative fee arrangement where both lawyer and client share some risk, major changes or client requests for work not anticipated by the original agreement can completely alter the scope of work. To avoid getting trapped in an inappropriate fixed-fee arrangement when this occurs, supplemental services agreements can be the answer.
If unforeseen circumstances arise or the client requests additional services not covered under the original scope of work, the additional services, how they are necessary to reach the client’s desired outcome, and the fee should all be discussed with the client and documented in writing. The lawyer should also obtain the client’s consent, preferably in writing, before work commences, if possible. Courts apply greater scrutiny to revised or amended agreements after the initial attorney-client relationship has been established, so this documentation is important whether the additional work is requested by the client or arises through other unforeseen circumstances out of either party’s control.
The engagement agreement can also anticipate the rare instance when it is not possible to obtain client consent in advance by defining the parameters under which the lawyer may proceed with the additional work absent specific client consent. For example, if the client has been advised in writing but has not responded within a set number of days, the lawyer may use his or her judgment to proceed with additional work.
While it may not be possible to anticipate everything that might occur during an engagement, or that might become the subject of a supplemental services agreement, clients should be advised that the scope of the agreement is limited, and that, should unforeseen circumstances arise or additional work be required that is not covered by the agreement, a supplemental services agreement will be prepared and an additional fee will be quoted. The factors that would trigger such an agreement should be discussed during the initial consultation, along with the general categories of additional work that might be required. The criteria for use of these agreements should be defined and memorialized in the engagement agreement.
Implementing effective alternative fee arrangements, like all new endeavors, may require a change in mindset, different ways of managing resources and work, and some trial and error, and scope creep isn’t the only challenge for lawyers (and clients) used to billable hours. But developing a price structure that provides more predictability for clients and aligns the interests of both lawyers and clients can be extremely rewarding.