Keeping Costs Under Control
Are your legal costs excessive? Law firms are part of the problem, says William Gwire, a San Francisco lawyer whose practice focuses on helping businesses control their legal costs. "Law firms have become very businesslike -- meaning, bottom-line oriented. Many set very large billable-hour quotas for partners and associates."
Large corporations can control their legal expenses by hiring in-house lawyers, but that solution is seldom practical for small and start-up businesses. So Gwire offers this suggestion instead: " Before you hire an outside law firm to represent you on a particular legal matter, negotiate with several firms to see if you can arrange a billing plan that's different from the typical uncapped, hourly-fee arrangement that tends unwittingly to invite billing abuses and overcharges." Here are five possibilities to evaluate:
· Volume discount. Most small companies don't bring enough business to a law firm to warrant volume discounts -- but if you can anticipate a onetime heavy demand (maybe because of a copyright-infringement case or plans for a complicated private financing), by all means try for one.
· Contingency fee. "This makes sense when the benefit you hope to receive from your lawyer will be measured in strictly financial terms," Gwire explains. In such cases as a tricky collection matter, you agree to pay the lawyer a percentage -- usually 30% to 40% -- of the dollars actually received or collected.
· Fixed or flat fees. Try for this arrangement in straightforward cases -- for instance, if you have a slow-paying customer who you believe will respond to a letter or two from a lawyer -- or in cases with clearly defined job segments. Expect to sign an agreement stating that the fixed fee will be reevaluated by an independent arbitrator if your case should prove to be unexpectedly time-consuming.
· Reduced hourly rate tied to a bonus. Think of this as a cross between an hourly rate and a contingency-fee arrangement. In such hybrid situations, your lawyer might cut his or her hourly fee in half, in return for an additional payment of 15% to 20% should he or she achieve a financially beneficial solution to your problem. "I like these arrangements best," says Gwire, "because both sides are shouldering the financial risks as well as the rewards."
· Hourly rate tied to a cap. "This is another way to place some certainty on the legal process. And certainty is essential for any business owner trying to budget and plan," notes Gwire. Here, you ask a lawyer to project how much time your case will take to resolve and then to commit to a time and cost limit based on that realistic estimate.