You can reduce your legal fees simply by keeping an eagle eye on your legal eagle.
March 1, 2004
By: Daniel L. Abrams
Article appeared originally in the New York Enterprise Report
Legal fees can be a large expense for small and medium-sized businesses. While expenses such as rent and payroll are predictable, many companies have difficulty projecting their expenses for legal services, especially where litigation is involved. Moreover, otherwise similar companies can vary dramatically in the amount of money they spend on outside legal counsel. The key is to reduce fees without sacrificing quality or results.
There are four stages which determine the amount of money a business will spend on legal fees. The first stage is before the issue or problem requiring legal representation develops. The second stage is attorney selection. The third stage is during the course of the representation, and the final stage is after receipt of the bill. The wise client will take proactive steps at each of these four stages.
Preventing Large Fees By Limiting Legal Problems
It is always easier (and cheaper) to prevent a legal problem from arising than to deal with a problem through litigation. Saving money on legal fees does not mean ignoring problems or handling matters yourself when you need legal expertise. Be proactive when storm clouds are on the horizon. For example,
- If somebody threatens to sue you do not wait for the lawsuit – hire a lawyer immediately. I once represented a corporate client who ignored repeated threats of a patent infringement lawsuit and later was surprised to find itself in an extremely expensive litigation. Early settlement talks can clarify positions and save substantial money in the form of both legal fees and damages.
- If you have a problem employee, do not fire him or her without consulting an employment lawyer who can tell you how to conduct the firing in a way that minimizes your exposure to a lawsuit.
- Get everything in writing. Too many silly litigations arise out of “he said/she said” disputes that can be avoided by simple documentation. By the way, this rule applies to dealings with your lawyers as well.
- Consider inserting a “loser pays” rule into your commercial contracts. This means that if a lawsuit is brought concerning the scope of the contract, the loser in the lawsuit will have to pay the legal fees of the winner. This discourages frivolous litigation.
- If you are about to be sued, check your insurance policies. Businesses occasionally pay their lawyers for defending a lawsuit without recognizing that the litigation expenses are covered by insurance.
Improper Legal Billing Practices
- Overhead, administrative charges, and clerical services. Unless specified in the retainer agreement or other agreement, you should not have hourly charges for non-legal personnel such as photocopy operators, secretaries, messengers, librarians or receptionists. Nor should you be paying for heating, air conditioning or “word processing”;
- Bills that are vague or have not been itemized to reflect services rendered. If you are being billed by the hour, you have a right to a bill that shows what your lawyer was doing, and when he was doing it;
- Excessive time to complete a task;
- Excessive staffing of a case or transaction;
- Not enough delegation. This is where a senior partner is billing at sky-high rates but spending a lot of time on routine legal work;
- Unannounced hourly rate increases; and
- Time spent on training new lawyers, lawyers unfamiliar with a certain field of law, or lawyers new to an ongoing case.
First, the good news: there are more lawyers in this country than ever before. The U.S. has over a million attorneys with roughly 175,000 in New York State alone. You should recognize your leverage. Moreover, every day more and more legal services are getting automated thanks to technology. Proper use of technology makes delivery of legal services easier and more cost-effective. Computers now generate standard legal forms, with secretaries and paralegals entering basic information so that pre-existing forms can be customized for use by a particular client.
Unfortunately, many clients hire the wrong lawyer for their problem and end up overpaying and sometimes cripling their business. Choosing the right lawyer is therefore a key business decision. Here are some tips on attorney selection:
- Skills and experience are a prerequisite (see below) but you should look beyond this to find a lawyer who communicates with you well, answers your questions in an easy-to-understand manner, and listens to your concerns.
- Do not rely on your general “business” lawyer to handle specialized problems. Start-ups usually need basic legal advice, and a corporate lawyer will be suitable to handle most legal problems. As your business grows, however, you are more likely to need specialized advice in such areas as employment law, intellectual property, and environmental law. Ask questions to verify that your lawyer is an expert in the relevant field, and obtain references from clients who have used the lawyer for similar problems.
- Ask about the total fees for a representation up front. Do not settle for the hourly biller’s favorite phrase, which is “it depends.” Good lawyers can and will project the likely course of a legal matter. Get a budget, or at least a written estimate for the expense of handling the entire matter.
- In most cases, smaller companies should avoid large New York City law firms. Such firms are generally focused on their Fortune 500 clients, not small and medium-sized businesses. Their associates bill out at up to $500 an hour these days, and are pressured to bill over 2,200 hours a year in order to be promoted. This “bill or die” culture leads to inefficient practices (and worse) that benefit the law firm but not the client. There are plenty of smaller New York City firms, plus suburban firms that can do the same work or better for far less money.
- Do not make the mistake of assuming a lawyer with a high hourly rate is better than a lawyer with a lower rate. You do not necessarily get what you pay for. As lawyers we alone set our rates, and discounted rates are the rule and not the exception. Rates correlate with marketing strategy, as much as they do with quality. Moreover, a high hourly rate may compromise your settlement position in litigation if your adversary is spending less on the case.
- Identify potential law firm candidates through personal contacts or legal directories like Martindale Hubbell. The larger a potential legal problem, the more lawyers you should interview. Always talk to at least three separate law firms for any non-routine case or transaction, and do not be shy about telling the firms that you are talking to other lawyers.
Being A Smart, Cost-Conscious Client
Even if you have picked the right lawyer, the conduct of you and your employees during the course of the representation can have a dramatic effect on your legal bills. Consider the following cost-saving tips:
- You should plan your meetings and phone calls to maximize efficiency. Outline a list of questions or topics, and finish as soon as possible. Phone calls about legal matters should not degenerate into social conversations. Consider using E-mail for matters that do not require interactive conversation.
- For litigation matters, explore settlement early and often. Litigation typically costs more than expected in terms of time, energy and money. While you may be furious at your adversary, you also have a business to run and it all comes down to dollars and cents.
- Tell your lawyer in writing exactly what you want. The clearer you are about your goals, the less likely that you will be billed for unnecessary work. Make sure, for example, that your lawyer is not negotiating a contractual provision that provides no practical benefit to your company.
- The wheel has been invented – look for ways to repeat transactions and agreements that your company does so that you need not draft from scratch. Many legal documents are available in popular commercial software packages such as Quicken Lawyer Business Deluxe. It is far less expensive to have a lawyer review and comment on an already-drafted document than to have the lawyer draft the document from scratch.
Review Your Bill
Your last chance to control legal fees is upon receipt of your legal bill. Most clients simply pay their bills without any review. Bills are often littered with overcharges. There is therefore a great opportunity for the cost-conscious business to negotiate substantial savings by spending a little time reviewing the bills.
Prior to paying for any legal services, you should review all bills and invoices to ensure that the amounts you are being charged are reasonable and appropriate. If you are paying by the hour, you are entitled to a detailed invoice that documents what your attorneys were doing and when they were doing it. The services detailed on the bill should be understandable to you, and should correspond to what you agreed the firm would do when you hired them.
If you have concerns about the bill, you should first discuss the bill with your lawyer. If the lawyer refuses to discuss the bill or his answers are unsatisfactory, you may hire a legal bill reviewer to examine the bill. See the sidebar (above) for some examples of improper billing practices.
If you are a small or medium-sized business owner, chances are you are an accomplished manager as well. Legal problems and the resulting fees need to be managed just like any other substantial business expense. If you rely exclusively on your lawyer to set fees and solve your legal problems, chances are you will be disappointed with the results.