5 Best Practices for Controlling Legal Costs

Many people cringe at the mere thought of being “forced” to hire an attorney. Hiring legal expertise is an expense that most people would live without and unfortunately there is the pervasive myth that all attorneys are out to gleefully take the shirt off your back! While the average consumer may only have to occasionally hire legal expertise, businesses must include legal as a line item expense in their budget. Fortunately, as with every service there are things that you can do to keep your legal costs from spiraling out of control.

Hire an attorney. One of the best ways to control legal costs is to seek legal expertise before there is a problem! Attorneys will help you to manage risk so that you avoid pitfalls that could cost you money. If you are setting up a corporation, or negotiating a large contract, it is worth it to involve an attorney experienced in that area. Your attorney will ensure that the terms minimize your exposure to risk. Even if you have contracted with a firm, or have in-house counsel it is important to communicate with them to avoid costly legal mistakes. Having a firm on retainer will mean nothing if you do not stay in communication with them about your business.

Hire the right attorney. This may seem counter-intuitive but many businesses believe that one firm can handle all of their legal needs. The most productive and cost efficient path is to hire the specific expertise you need. A firm that specializes in a particular area of the law will handle a much higher volume of those types of cases as opposed to a firm that handles those same cases on an occasional basis. In example, you have contracted with a large law firm for your business. You have a copyright issue that occurs and the firm has their in-house Corporate specialist handle the matter. This attorney has handled 6 copyright cases in the past 12 months. As such, it takes him 30 hours to research your case. Another firm that specializes in copyright issues handles 10 cases per day. This firm would be able to research and resolve your issue in 10 hours. In hiring the right attorney you have saved money and time. In another example, let’s assume that you have a neighbor that is an attorney who specializes in trademarks. You are planning to invest in a real estate deal and seek her advice. Although your neighbor is an attorney and as such has legal expertise this is not her area of practice. She could certainly research the issue and in the end would do a competent job. (This is for illustrative purposes only. In the real world your neighbor would explain to you that it is not her expertise and would offer to refer you to someone else.) However, it would be much more time and cost efficient to deal with an attorney whose area of expertise is real estate. Hiring the right attorney is much like choosing the right physician. If you have a heart problem you would see a cardiologist and not a podiatrist. While both are trained medical professionals they each have a specific area of expertise.

Negotiate the right fee structure. Law firms offer many types of billing arrangements beyond the traditional hourly billing schedule. You should explore the options with your attorney and decide on the best fee structure for your legal needs. Hourly billing is not to be avoided at all costs, it may be the best option for you, but it is important to have the discussion. You may decide upon a fixed fee agreement. This is similar to a project fee in that you and your attorney agree to a scope of work and agree on a flat fee for that work. This is helpful in that it enables you to budget your legal expense in advance. Contingent fees are another fee structure. In this arrangement, the legal fees are contingent upon the results. In most contingent fee structures there is also some type of fee, typically a limited number of hours at a reduced hourly rate. In example you would pay 10 hours at $200.00 per hour, but if you won your case, there would be an additional 10% of the settlement. Similar to a contingency fee, you and your attorney may agree upon a reduced hourly rate plus a bonus structure. The most important thing is to have the discussion and work with your attorney to define the fee structure that meets your needs.

In addition to negotiating the fee structure, you should also clearly define what is included in the fees and what would be considered an additional expense. In example, if your attorney has to meet you on location, will you pay for the transportation expense? Will you be charged for document services, such as process serving, title searches, or photocopying? If the firm outsources a portion of the work, how is that billing handled? You can avoid surprises and control your costs by clarifying these issues up front and negotiating how they will be handled.

Review your bills. We all know that we should carefully review every bill we receive and clarify any questionable item, but too often we perform a cursory review and write a check. In reviewing your legal bills, you will be analyzing two broad areas, accounting and performance. In reviewing the accounting you want to ensure that the bills accurately reflect the negotiated terms. Are there other expenses included on the bill? Are you being billed for supervisory, clerical or administrative tasks? Your bill can also help you to analyze your firm’s performance. How many hours are being spent on tasks? How does this compare to other firms? What is the cost per activity? Is time being spent and billed appropriately, i.e. is a senior partner doing the work of a paralegal? You are in control of your legal spend and it is important to identify the firm that meets your policies and has the best practices. The firm with the lowest billable hour may not be the most efficient, thus costing you more money in the long term. Without reviewing your bill and comparing you will not have the needed information to control your legal costs.

Communicate with your attorney. You should clearly identify your goals to your attorney. It is not enough to simply present your attorney with a legal task but ensure that the attorney clearly understands your goal for the end result. In example, if you are in a partnership with another party and you hire a firm to sue the partner over a specific dispute, but never tell the firm that you want to dissolve the partnership you will spend money on litigation that will not net your desired outcome. Just as important as stating your goal is to maintain close communication. Monitor your attorney’s activities, stay in close contact either through phone calls, emails or regular meetings. You will keep the firm up to date on your business activities as well as ensure that your legal dollars are being wisely spent.

It is impossible for businesses to avoid legal expenses, but it is quite feasible to manage those expenses. The best practices outlined along with a clear legal strategy will help you to have a better relationship with your law firm as well as feel a lot better when you receive their bill!

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