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The engagement letter: safety comes from clarity

Six things that client needs to know

An engagement letter is protection – for both firm and client.

It prevents argument on what the firm is expected to do for the client and what the client is expected to do for the firm. Thus, it needs to be clear, brief, and readable.

Don’t give the client “a scholarly work or something that reads like an insurance policy,” says J. Larry Green, a law firm management consultant in Athens, GA.

Give a reader-friendly letter. And then go over it with the client line by line so there’s no question on either side about what’s to happen.

The client needs to understand it – without having to take it to another attorney for interpretation.

As to what the agreement should cover, there are six essential items.

No, we’re not going to do that

First is the scope of work.

The letter needs to state clearly what the firm will do and just as clearly what it won’t do. And of the two, “the what-we’re-not going-to-do part is the place to focus in on.”

Often a prospect comes in looking for representation for one issue and in the course of the conversation says “oh, by the way, I also want to draft a will” or “I also have some tax issues.”

If the engagement letter doesn’t say otherwise, the prospect may well leave thinking the firm is covering that other matter. And if that other matter carries a filing deadline that gets missed, here comes a malpractice claim.

Make the yes and no parts of the letter clear to the point that no one could misunderstand them.

Tell what will be done: You have employed us to help you with an employment discrimination claim against XYZ Corporation. We will provide representation through the first Equal Employment Opportunity Commission hearing.

Tell what won’t be done: This representation does not include an appeal or filing a lawsuit. Those services will require a new engagement letter.

And for absolute clarity, add a statement of We are not providing representation for any other matter.

Be careful of giving free advice afterwards on other topics, Green says.

Clients often ask for it, and it’s easy to get roped in. The client says “I was wondering . . . I have this piece of property. Can I put a fence up?” And the attorney says “I don’t see why not.”

The only right response for an attorney in that situation is “that’s not an area I handle.”

Saying more can open the door to trouble. The client may come back later with “you told me I could put a fence up, but another lawyer says that because I let someone drive his tractor through my property for 10 years I have to put in a gate.”

You’ll see these names on your bill

The second item is a list of the people who will work on the matter.

Most clients – and particularly those who have never hired an attorney before – think the attorney they see at the initial meeting is the only person who will be doing their work. Then in comes a bill with charges from people the client has never heard of.

The letter needs to list everybody who will participate in the billing, from the partner to the associates to the paralegals. And along with that, give their hourly rates.

As a further safe step, introduce the client to those people before the work begins.

And still more, attach an information sheet of the names and contact information of everybody the client is likely to meet throughout the representation – down to the receptionist and the billing department staff.

Here’s what you’ll have to pay

Third is the cost.

“Be above board about fees,” Green says.

Tell how the firm charges – flat rate, hourly rate, flat rate with some type of kicker if there’s a good result, or whatever.

Also give an estimated total cost. Any attorney who has experience in the type of matter being taken on should have an idea of what the work will cost, he says.

It’s not enough to quote a fee of $250 an hour; the client wants to know the total. It’s the same as hiring a plumber who says “I charge $X an hour, but I don’t know how much it’s going to cost, because I have to tear this wall out and see what’s going on.”

A good way to quote the cost is with upper and lower limits, such as “this could run anywhere from $5,000 to $10,000.”

Quote on the high side, he says. Nobody wants to expect one amount only to face sticker shock later. But anybody is pleased when the fee comes in under budget.

Cover the expenses as well.

List what they will include, because the client may not know there will even be expenses.

Say that the firm will charge for couriers, reproductions, expert witnesses, or whatever is appropriate for the matter.

List everything that will appear on the bill, including the incidentals such as copies and postage, so the client is never surprised to see a charge.

And to make the charges seem more in the client’s favor, list too the things the firm will not charge for. What about including the expenses in the overall rate?

Green’s advice is probably not. It makes the hourly rate look high. What’s more, not every client is going to incur the expenses the charge covers.

Usually, the best approach is to have the larger costs such as court reporting and depositions billed directly to the client, he says. Then the client sees it as a separate expense, and the firm doesn’t have to front the money.

Along with the amount, explain the billing procedure – when bills go out and when payment is expected. In addition, include a sample bill in the information package the client receives.

Finally, be clear about what happens if the bill isn’t paid: “if we don’t get paid by (date), we will have no choice but to discontinue the work.”

We need this much up front

The next point to explain in the letter is the amount of money the firm needs to get started.

Many attorneys argue that a retainer isn’t appropriate, Green says, “but every other profession does it.”

His advice is to call it an advance instead of a retainer, because people understand that concept. They realize that any business needs money to start new work.

Give the initial amount, and if the firm wants to maintain a fee reserve, tell what the minimum level will be and when the client will have to replenish it and by how much – and again, what happens if the advance isn’t replenished on time.

Tell too how any unused money in the reserve will be returned at the end of the matter.

Green points out that the retainer “shouldn’t be a token amount.” It should be substantial enough to ensure the client “is committed to the case and has the ability to pay.” His recommendation is to set it high enough to cover the first two months of work or one third or the entire cost.

And before starting the work, “make sure the check clears.”

Here’s how we’ll settle things

The fifth item is a dispute resolution clause.

Tell what the client will do if there is a dispute.

The agreement may say, for example, “if you have concerns about your representation, please call me and we will talk about your concerns and reach a resolution.”

Tell too what happens if the issue isn’t solved at that first step, perhaps a meeting with the managing partner. And then say that if there’s still no satisfaction, the matter will go to arbitration.

That’s a serious point of safety, Green says, because it keeps any dispute internal.

It’s assurance that the client won’t find another attorney and come back with a lawsuit. The firm “absolutely does not want it to be settled in court.”

And here’s how we’ll say good-bye

The last element of the engagement letter is a description of the end point.

“There needs to be a clear bright line” showing when the case is over, Green says. There should be no question of when the firm’s obligation to the client comes to a close.

Be specific about what occurrence constitutes the end, for example, Upon completion of X, we will be finished with the work, and your representation will end.

Say that the firm will send the client a certified letter stating that the representation has ended.

Say too that the client can pick up a copy of the file and also that the firm does not store files but “they are your responsibility.”

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