For firms with broad practices, either generally or within a practice area, a specialist may not be a viable long-term partner or of counsel, but may be useful in particular matters. This article will discuss considerations in bringing specialists into particular matters without bringing those same specialists into the firm as shareholders or employees.
1. Written engagement letter. Even if a firm's relationship with an outside specialist is flexible based upon the needs of the client and any developments in the case, the firm and the specialist should document their engagement in writing. This is necessary not only to comply with ethical requirements in various jurisdictions regarding written fee agreements, but also to create a record of how the firm and the specialist divide professional responsibility. Even where a firm regularly collaborates with a particular specialist, the best practice is to execute a new letter of engagement for each matter. To the extent that a collaboration began with friendly advice, but that friendly advice will appear as billable entries on an initial invoice, the letter of engagement should note that it is retroactive to the date on which that friendly advice began.
2. Compensation and expenses. Clearly define in the letter of engagement the rate of compensation for the specialist, whether flat fee, hourly, or contingent. Define who—the firm or the specialist—will shoulder the cost of expenses. Define who—the firm or the end-client—will be responsible for paying the specialist. These arrangements often work best when the firm is responsible for paying the specialist, when payment to the specialist is not contingent on receipt of reimbursement or retainers by the end-client, and when payment to the specialist is not subject to reduction by the firm or by the end-client. Traditional fee agreement language allocating costs of collecting on unpaid invoices, interest on unpaid invoices, and any referral fees, are as important in a letter of engagement between a firm and a specialist as in a fee agreement between an attorney and a direct client.
3. Guaranty of payment by end-client. If the firm will not bear primary responsibility for paying the specialist, then the letter of engagement should contain a signed guaranty of payment by the end-client, explicitly explaining the collection rights of the specialist in the event that the end-client fails to pay the specialist. Regardless of whether the specialist works on a retainer basis when a firm is directly responsible for payment, the specialist should always work on a retainer basis when an end-client is directly responsible for payment.
4. An investment in skill, not a profit center. Collaborating with a specialist is usually an investment in skill, not an employment arrangement functioning as a billable-hours profit center for the firm. The firm may bill the specialist's time to the end-client at a higher rate than the specialist charges to the firm, if such an arrangement complies with local ethical rules, but a firm working with a specialist must conduct business understanding that the specialist is a peer and not an associate employee. Discounts, if any, should come as a pleasant surprise to the firm from the specialist, rather than as an unpleasant surprise to the specialist from the firm.
5. Clear budgetary limits. To the extent that the firm foresees budgetary limits from the end-client, the firm and the specialist should discuss those limits at the outset of the engagement. An appropriate way to address budgetary limits is for the specialist to tailor the scope of his or her work to a reasonable budget. It is generally not appropriate for a specialist to reduce his or her billing rate based upon anticipated budgetary limits. Again, the firm is investing in the specialist for his or her skill set, not for his or her potential as a profit center.
6. Professional responsibility. The firm and the specialist should clearly allocate, in writing, primary professional responsibility for the matter. In most instances, the firm will have had a prior professional relationship with the end-client before the specialist became involved, and the firm will likely continue to have an ongoing professional relationship with the end-client after the specialist is no longer involved. The firm is therefore likely to hold a veto power over legal advice and strategic decisions of the specialist. Such a veto power makes vital a clear written record that the firm, and not the specialist, bears final professional responsibility for the matter. If a specialist fully takes over a case for an entire phase of litigation, and if that specialist has final professional responsibility within that phase of the litigation, the firm and the specialist should likewise document the specific parts of the litigation for which the specialist does and does not have final professional responsibility.
7. Letterhead. Collaborating firms and specialists should diligently maintain separate letterhead and separate signature blocks. Attorneys of the firm and an outside specialist may both sign pleadings, but those signatures should appear immediately above separate address blocks clearly indicating the separate and distinct affiliations of the firm and the specialist. Collaborative work of this sort is not a "partnership," "of counsel," or "associate" relationship, and all communications and filings should make that distinction clear.
8. Professional liability insurance. Collaborating firms and specialists should both carry professional liability insurance, and should make maintenance of such insurance one of the mutual conditions of any engagement. Any specialist collaborating with firms should obtain written confirmation from his or her professional liability insurance carrier that his or her policy will cover work that the specialist undertakes in collaboration with firms, to the extent of the work product that the specialist sends out to the firm under the specialist's own letterhead. If the firm then makes changes to the specialist's work product before filing, then professional liability for those changes should fall on the firm, but the specialist should confirm that the carrier will cover the specialist for his or her own work product.
If something goes awry over the life of the matter, an irate end-client will inevitably seek to collect from any available professional liability policy. If the firm does not carry coverage, then the end-client will claim against the specialist's coverage, even if the specialist had long since ended the engagement, even if the specialist played no role in the alleged error or omission leading to the claim, and even if the ultimate end of such a claim or action against the specialist may be a dismissal or summary judgment in favor of the specialist. Therefore, specialists should collaborate only with firms carrying professional liability coverage. Firms, likewise, should collaborate only with specialists carrying professional liability coverage.
9. End-of-engagement letter. The specialist should send a letter to the firm documenting the end of the engagement, in order to create a record of when the specialist ceased to have any professional responsibility for the matter. Even when a firm regularly collaborates with a particular specialist, the best practice is to execute a new end-of-engagement letter for each matter. The firm may do business on a regular or recurring basis with a particular end-client, but the specialist may become involved in only one matter for that end-client, and it is important for all to understand when the specialist's involvement ends.