It is a fundamental business and professional necessity that lawyers have a signed engagement letter for a new client, stating each party’s responsibilities for making the engagement a success.
You will have an easier time meeting your client’s expectations and collecting your fee if you incorporate all essentials in the engagement letter. Make sure clients understand that they’re entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill.
At a minimum, the following points should be covered in the engagement letter, with both lawyer and client stipulating and agreeing to the facts stated:
- Who the lawyer is representing
- The scope of the representation – what the lawyer will and will not do
- The fee to be charged and how it will be calculated
- When the fee is to be paid
- The consequences of non-payment, including the lawyer’s right to withdraw
- Budgeting and staffing
- Frequency and method of communications from lawyer to client
- The client's responsibilities, including payment in accord with the agreement
- Dispute resolution procedures if either party to the engagement has a dispute with the other
- Resolution of conflicts of interest or other ethical issues.
This list is heavily weighted to the financial side, for good reason: stipulating payment rates and terms up front is the best way to get paid. This is particularly true regarding a number of factors on the list that affect client payment behavior:
Budgets: In every engagement letter, indicate that you will formulate a budget that addresses events, time and money; that the client will pay for such budget; and that the client will accept it before further work is performed. This significantly increases the chances of collecting your fee because the client understands what to expect.
Ancillary expenses: Every ancillary charge should be specified in the letter. However, be aware that even if your agreement with a client lets you charge for opening a file on each matter or for photocopying a file before giving it to a client on request, clients may resent perceived “nickel and diming” on charges they consider overhead.
Communications: Communication, or lack thereof, is the single most cited reason for client dissatisfaction. The engagement letter should state explicitly that you will notify the client in advance of any major expenditure, especially those not included in the approved budget. If you suspect a slowdown by the client in connection with payments of your fees is due to client to dissatisfaction, immediately confirm your suspicion and find out why the client is unhappy.
Another crucial area for stipulation in engagement letters involves trust accounts. Flat fees or retainers can be withdrawn from a client’s trust account as specified in the engagement agreement. Withdrawal can be predicated upon reaching specific events such as: a date certain, the filing of a complaint, or the signing of a settlement or merger agreement.
Even retainer fees can be deposited into a general account if the agreement says that the retainer is not for future work but for the lawyer specifically being engaged (and thus taken off the market). Some lawyers will split the fee, making part of it a non-refundable retainer and placing the balance into the trust account for withdrawal as the work is performed. This method makes a clear distinction between the two elements, again as specified by an event or date which triggers a withdrawal from the trust account and places it into your general or operating account. This avoids waiting for the client to say "yes" after the fact and allows you to get the money sooner.
If, after all this, the client says “You’re too expensive,” you can respond by saying that your other clients find that their investment in their matters with you are more than justified by the results. However, you can understand this client’s feeling and that this client should find other counsel because your fees are not negotiable. Often, this produces one of two results:
The client is impressed with your negotiation skills and wants to be represented by a tough, expensive lawyer, and therefore will accept your terms of engagement; or
The client leaves but becomes a great walking advertisement for you, convincing listeners that you must be highly qualified because you’re aggressive, expensive and unapologetic.
You can also be more flexible and counter a price concern, not by lowering your rates, but by taking services “off the table.” In other words, for X dollars, you will do this and for "Y" dollars you will do that (X less "abc”). The client gets the message that you are not changing your price, you are charging a different price for a different quality of service.
If returned phone calls within two hours are part of your regular hourly rate, tell the client that your response time will be 24 hours at a lower price. When you get agreement on things like this up front, your chances of collecting your fee go up significantly because the client understands what to expect.
Going through this process of negotiating with the prospective client to prepare the engagement letter and detailing the service to be provided can avoid unrealistic client expectations or demands. Your client will also understand that your estimates, whether of time or outcome or costs, are guarantees instead of informed estimates.
Discussing engagement terms will frequently uncover the client that will express irritation with delay, who will chronically complain about everything, who will demand constant or instant attention, or who expects unrealistic or abnormal hand-holding.
Clients who cannot or will not discuss or agree on fees, or who will not sign a fee agreement or pay a retainer should be suspect. Clients who want to start now and pay later, or nit-pick over the fee, may be broadcasting a subsequent fee dispute or claim. Beware also of clients who:
Insist that their matter is “life and death”; such clients will often be future sources of last minute emergencies that at best are irritating and at worst can result in errors under pressure.
Use pressure tactics to urge that their matter be handled first once the engagement begins.
Demonstrate a bad attitude toward lawyers and the judicial system, or suggest that they know better than the lawyer what needs to be done.
- Cannot articulate what they want you to achieve.
Rejecting such clients before representation will minimize the aggravation of fee collection difficulties as well as possible malpractice claims. The time to make it clear is right at the start – as revealed in preparing the engagement letter.
Edward Poll (firstname.lastname@example.org) is a certified management consultant and coach in Los Angeles who coaches attorneys and law firms on how to deliver their services more profitably. He is the author of Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (ABA , 2002), Collecting Your Fee: Getting Paid from Intake to Invoice (ABA , 2003) and, most recently, Selling Your Law Practice: The Profitable Exit Strategy (LawBiz, 2005).