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Loss Prevention Tip #16

Loss Prevention Tip #16: Fee Agreement Checklist

A well-written fee agreement encompasses more than your hourly, flat or contingent fee; it should define the parameters of the work to be completed, and address your obligations to the client, and the client’s obligations to you. It should also address your rights (e.g., to seek withdrawal) and your client’s rights (e.g., to terminate representation). Be clear in the language you choose.

Avoid legalese. Use common language that is clear to your clients. Remember, because you are the person drafting this document, it is possible that any error or ambiguity may be resolved against you if a fee dispute later arises.

A comprehensive written fee agreement should address the following issues:

Define the scope of your services: Be specific about the legal matter on which you are representing the client. You should stipulate the exact nature of the relationship, what role you are taking, what functions you are to perform, and what your ongoing role and responsibilities will be. This is particularly important in the case of a limited retainer.

Define the timing of your services: Make your services contingent on cooperation and payment from the client. If you want payment before commencing work, clearly state that your services start after the client has paid the advance or the flat fee. State that your services may cease if the client fails or ceases to pay your bill.

Explain the fee arrangement: For your client’s edification, explain the type of fee arrangement you are using. If it is a flat fee, expressly state that your fee is a one-time, up-front payment before services begin. For an advance fee, explain in the agreement that you will be charging your services against the advance fee on an hourly basis, and write in that hourly amount. Let the client know that when the advance fee is exhausted, you will cease to work on the file immediately, and you will require more money within a set period of time, failing which you will withdraw from the file.

State examples of the services to be billed to the client: For your clients who are billed on an hourly rate basis, explain that they will be billed for your time on all aspects of the case, and cite several types of billable services, such as examinations for discovery, telephone calls, drafting correspondence, pleadings, trial preparation, etc. State the amount of your minimum time increment: one-tenth of an hour, one-quarter of an hour, etc. Clients will appreciate knowing these details in advance, and such disclosure will save you numerous headaches over time.

Explain the client’s obligation for costs: There are two types of costs usually billed to the client: Costs incurred in your office, such as copying charges, postage fees, long-distance telephone charges, etc., and costs billed by outside vendors, such as court filing fees, messenger services, and process fees. Some lawyers pay all costs and pass them along in their bills to the clients. Other lawyers charge clients for the in-office costs, and have the clients directly pay the costs incurred by outside entities. Still other lawyers require funds in advance from clients to pay for costs incurred during the course of the matter. Decide how you want to bill your client for costs and so state in the agreement.

Explain your billing practices: Let your client know how often he or she can expect to receive your bill (preferably monthly), then make sure you stick to the promised schedule. Also explain when payment is due (upon receipt; within 30 days, etc.).

Allow your client time to question your bill: Discussing your bill with your client will ease client concerns when the bills start to mount. Let your client know in the fee agreement that he or she may discuss the bill with you at any time. (Excerpted from Managing the Finances of Your Practice Booklet by the Lawyers` Professional Indemnity Company)