One of the areas of greatest interest to lawyers starting their law practice is billing for legal services. Most lawyers determine a hourly rate for their services following the factors sets out in Oregon Rule of Professional Conduct 1.5 Fees, (b) …”Factors to be considered as guides in determining the reasonableness of a fee include the following: (1) the time and labor required; the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the result obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.”
The third factor generally stumps new attorneys: how to determine the fee customarily charged in the locality for similar legal services. Antitrust concerns keep lawyers from asking what other lawyers intend to charge. To charge a reasonable fee, lawyers should be aware of what is a reasonable fee for providing legal services in their substantive practice area as well as geographic area. The Oregon State Bar conducts an Economic Survey every five years. The lastest survey was done in 2007 and forms the results posted online as the 2008 Hourly Rate Survey. Another resource is to go to the local courthouse to examine court filings containing attorney affidavits of fees that are filed in conjunction with the case such as in Probate Court matters, conservatorships and guardianships and probates. Common sense tells you that a large firm will charge more for providing legal services than a small firm or solo practitioner. Young associates likely will be billed at a higher rate than that charged by a sole practitioner with the same year bar number. Why the difference in hourly rates for two first year associates? For the young attorney in the firm, the overhead factors take into account the resources supporting the young attorney that will not be billed to the client.
Should you charge flat fees for services? Some transaction-based services lend themselves to a flat fee arrangement. $XXX for a will, power of attorney, and health care directive for a single person and $ZZZ for the same documents for a married couple. How much to set for preparing these documents should take into account how long it should take or will take with experience. At minimum, you should account for an hour consultation you’ll have, plus however long to prepare a draft, to review the draft with the clients, to finalize approved documents, and to have the documents properly executed and notarized. When you think through the steps you’ll be taking with your clients, you’ll realize a realistic amount that will fall within the guidelines of Oregon RPC 1.5 (5). This example is still a cost-basis, hourly billing based method. An example of an alternative fee basis is value-based billing, arriving at a cost that reflects the value of your services to your client.
If you intend to charge a flat fee, remember that until you earn the fee, you must put client money into your lawyer trust account. You may have heard about fees that are “earned upon receipt.” If you intend to be entitled to the full amount of the flat fee at case commencement, then you must put, “earned upon receipt” in your written fee agreement. If you do have an written agreement specifying that your fee is earned upon receipt, then you must put the entire flat fee into your general account, not into your lawyer trust account where you would be commingling funds. Be sure to fully advise your client of the nature of your fee. Clients welcome and expect clearly written fee agreements. Lawyers who do so, reduce the possibility of fee disputes and fee collections.
CAVEAT: Avoid calling a fee that is earned upon receipt “nonrefundable.” If you don’t do the work, you aren’t entitled to a fee. Oregon RPC 1.5(a) “A lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee or clearly excessive amount for expenses.” If you try to charge a non-refundable flat fee earned upon receipt and don’t do the work, you would be viewed as charging a clearly excessive fee for doing nothing. Moreover, Oregon RPC 8.4(a)(3) advises that it is professional misconduct for a lawyer to “engage in conduct involving dishonesty, fraud, deceit or misrepresentation that reflects adversely on the lawyer’s fitness to practice law.” All clients have the right to challenge a fee as excessive, even if their fee agreement is in writing and have a right to be refunded fees for work not performed, see OSB Legal Ethics Opinion 2005-151. This Opinion deals with flat fees and points to the holding in the case In re Gastineau, 317 Or 545, 857 P2d 136 (1993). “The disjunctive use of the word ‘collect’ means that the excessiveness of the fee may be determined after the services have been rendered, as well as at the time the employment began.” In re Gastineau, supra, 317 Or at 550–551.
What about alternative fee methods such as value-based billing? How do you equitably charge for an opinion letter that saves your corporate client thousands of dollars in taxes? An hourly rate computation may not adequately compensate the lawyer providing the highly-valued services to the corporate client. It is analogous to the performance of delicate heart surgery; the skillful surgeon bases her compensation on more than time charges. Have a very clear written fee agreement to set forth your value-based billing arrangement. Value-based billing isn’t incompatible with Oregon RPC 1.5, see especially (b)(1) -(8).
I recently got an excellent guide to alternative billing called, “Winning Alternatives to the Billable Hour: Stategies That Work, Third Edition” by Mark A. Robertson and James (Jim) A. Calloway from the ABA. The book includes a CD with sample agreements and forms. Through the Oregon State Bar Professional Liability Fund, Oregon attorneys can purchase ABA books at a 15% discount. You can preview a sample case study, “Alternative Billing in Estate Planning,” and the ABA Book Briefs Blog excerpts a helpful portion of the book in an post titled, “Using Your Current Practice to Plan and Build a Billing Method.” As Mark and Jim point out, “a gunslinger doesn’t charge by the bullet.”
There is room to improve beyond the billable hour.
