When you retain a law firm or a lawyer, you often cannot control the budget for legal services. By the end of a project you may find out that the legal fees have doubled if not tripled. This is the fault of both the client and the law firm. How this can be avoided?
You start interacting with a law firm by sending a request for an estimate of legal fees. Lawyers sell their time, and if you want to receive a more or less precise figure, you would have to define the scope of services that needs to be estimated.
If the scope of services lacks clarity, you will receive either a fee proposal with a wide range of figures (which does not work for you because effectively does not give you any real price) or with a big number of ‘assumptions’, which can eventually bring to nought your attempts to control legal budget for the project.
The assumptions work as follows. A law firm estimates its fees for the scope known at the moment of the estimate, whereas the rest of the services are not included in the estimated scope and, therefore, into the proposed price. Assumptions normally describe the anticipated circumstances in which the adviser would be rendering the services.
The most common assumptions include a time period for rendering the services, timeliness and completeness of providing documents and information, appointment by the client of a contact person, and some others. If actual conditions of the project do not meet the assumptions, the adviser would receive a ground to claim additional fees.
Sometimes assumptions are worded in a way that a priori excludes a possibility for a project to meet them. For example, an assumption may say that no undue or unexpected administrative or other issues would arise such as to substantially increase the amount of time spent by the adviser for rendering the services. But what does an “administrative issue” mean? If, due to the client’s fault, collection of documents for legal due diligence has taken 10 instead of 5 (as budgeted) hours, can this be considered to be such an “administrative issue”, and can this be a ground for claiming additional fees?
No project goes absolutely smoothly. For over 20 years of our legal practice, we have not seen a project that would go as initially planned. A majority of law firms budget their services by estimating time they anticipate to spend for the service under normal circumstances. At the same time, at the preparatory stage (especially if a project is complex), neither the client nor the law firm might really know what needs to be done and how much time the work would require.
Because of that, the above assumptions are included into fee proposals and engagement agreements and they play out to one extent or another. The rest depends on attitude of a lawyer (law firm). The lawyer may either attribute the additional work to a sort of ‘force majeure circumstances’ or start claiming additional fees from the client referring to the assumptions made in the agreement.
One of specifics of the Kazakhstani legal market is that legal services do not require a license (except advocates and notaries). Also, there is no unprejudiced rating system that would help selecting a professional and good faith adviser. The client has no choice other than to move by touch in selecting a law firm, which is widely advertised or catches the client’s attention for other reasons.
In order to sell their services, some firms may give artificial estimates that would be significantly lower than the fees they anticipate to receive in the end, but include in the proposal many assumptions allowing them to claim additional fees.
The most painful here is that the project is launched and running at full speed and it is extremely difficult to decline the firm’s services (even if you suspect the law firm is not acting in good faith). Change of a lawyer, handover and other procedures might not lower your costs but even trigger an increase.
But it is not only the legal advisers to be blamed. The client is sometimes also at fault due to his inability to clearly describe the required scope of services and what he expects from the lawyer.
How can unplanned costs be avoided? Is it possible at the stage of negotiations with lawyers, before the agreement is signed, to understand whether it makes sense to work with them?
First of all, you need to understand and describe the anticipated scope of works as precisely as possible. Often, especially in large and complex projects, this is not easy. A good faith adviser, who is interested in fair cooperation with the client, would help the client to understand and describe the task, which would allow proposing a real price for the scope clear for both. As early as you collect fee proposals from lawyers, you will see who of them (free of charge – as you might not choose him in the end!) is trying to think the project through, asks additional questions and suggests what needs to be done, and who simply sends you a fee proposal with a dozen of intricate assumptions. Guess who you will feel more comfortable to work with? (We note in brackets that it is not always possible to avoid assumptions.)
If you together with your good faith adviser still cannot determine the scope of works, it is feasible to split the entire scope into smaller stages. You have a complex transaction that may be structured in two different ways. You do not know which of the options is better. Ask your lawyer, as the first stage of work, to describe pros and cons of both options and request for now an estimate of legal fees only for this analysis. When you understand what structure fits you better, ask the lawyer to estimate the work to be done in this chosen scenario. This would help you to better understand the legal scope required, and help the adviser to give you a more precise estimate. And at this stage your legal budget is the cost of the analysis only. If this adviser appears too expensive, you (already knowing the scope) can approach another. By the way, in these circumstances a good faith lawyer would advise you to structure the work exactly this way.
And last but not least, you should appreciate that no matter how professional or fair the legal adviser is, he will act at your instructions and in your interests. So, to safe the budget, you should organize consistent interaction with your legal adviser: give him clear and unambiguous instructions, appoint a competent person to interact with the adviser, timely give feedback to adviser’s queries. The lawyer cannot give you what you expect from him without your assistance, and, even he can, he would spend much more time and efforts and will ask you to pay for those additional time and efforts.