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Off The Clock

Need an attorney? New fee structures offer alternatives to the billable hour.
September 1, 1997
URL: http://www.entrepreneur.com/article/14596

Any time you use a lawyer, chances are you'll be coping with uncertainty. That's certainly true in litigation cases where you don't know what the judge or jury will decide. And when you're putting together a business deal, there's always the question of what might go wrong and whether the contract covers that possibility. What shouldn't be uncertain, though, is what to expect when you receive the lawyer's bill. To properly budget, you should know how the lawyer computes the bill and what a given matter is likely to cost.

Especially for business law, lawyers traditionally charge an hourly rate for legal services. That system came under fire from business circles about five years ago, with critics charging attorneys with inflating the number of hours worked. Although most respected lawyers are scrupulous about keeping track of hours and attempting to get the best results in the shortest time possible, articles in business and legal magazines trumpeted abuses by big-firm lawyers caught padding their bills. Distinguished judges blamed the hourly billing system for detracting from lawyers' professionalism and commitment to their clients. They argued that someone paid by the hour has less incentive to use that time efficiently or strive for the highest quality of work than someone whose payment is tied to results.

In the wake of all this, businesses and entrepreneurial lawyers began drafting new methods of billing designed to reward efficiency and excellence: contingency fees for business deals, value-based billing, fixed fees bid in advance and various other hybrid forms. "People thought it was the end of the billable hour," says Elbert Kram, an attorney with Bricker & Eckler LLC in Columbus, Ohio, who specializes in business law. As it turns out, the changes haven't been that dramatic. "It's difficult to track costs if there are no billable hours," Kram says. Nonetheless, many lawyers are willing to make creative arrangements to suit their clients' needs and desires.

Just My Type

"In the abstract, there are just as many choices as people have imagination," Kram says. "Lawyers are more willing now to consider alternatives." Here are a few options that might work for you:

"The goal is to move the transaction along rather than just grind out the hours," Kram says. "The lawyer agrees to assume part of the risk." Be careful, though. Some state bar associations frown on this arrangement as unethical because the attorney has a financial incentive to conclude a deal even if problems arise that could harm the client. Many lawyers avoid these arrangements because this essentially makes the attorney an investor in the deal.

If you think an alternative billing arrangement could work for you, talk to your lawyer. "No client or lawyer should be embarrassed to talk about fees," McCallum says. "Raise the issue of fees early on, and be candid. If the attorney is not willing to be candid, that's a danger sign." Discuss what you're willing to pay to get a deal done, and ask for a guarantee that it won't go higher. When you've worked out a satisfactory arrangement, get it in writing to avoid unpleasant surprises when the bill arrives.

Work It Out

What if your legal bill turns out to be unreasonably high? Many bar associations offer a program called "fee arbitration," in which the lawyer and client appear before an independent panel to present their sides of the story. The panel then dictates a reasonable fee for the work performed to settle the dispute quickly so you can get back to work. For more information, contact the ethics office of your local bar association.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

Contact Sources

Bricker & Eckler LLP, 100 S. Third St., Columbus, OH 43215, ekram@be.bricker.com

Warner, Norcross & Judd LLP, 900 Old Kent Bldg., 111 Lyon St. N.W., Grand Rapids, MI 49503.