Now, the hourly billing method has been successful for attorneys and the clients they serve…so there is no need to throw the baby out with the bathwater right away. But it is equally true that in today’s economy, hourly billing can sometimes not be the most economically efficient way of providing legal services to clients.

All that being said, and given the recent cost-cutting focus of large corporations and rich people the world ’round, the law industry is beginning to come around to the notion of Fixed-Fee Legal Services (as this story proves).

What a concept.

Fixed-Fee legal services are already something offered by many attorneys (including your humble author), and a practice that is more prevalent than traditional hourly billing in some areas. The fact that the legal industry as a whole is beginning to entertain the notion makes it newsworthy, but certainly not original.

Fixed-fee has the potential to be both the greatest revelation in attorney/client relations since the introduction of computer technology and, at the same time, the worst idea ever. The key to fixed-fee (and to successful hourly billing) is at all times managing client expectations; understanding the scope of work to be done; and fleshing out the relevant facts before beginning work.

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1. Lawyer Money Stuff: Retainer Fees and Fee Agreements

A Fee Agreement is a required (as in, required by most states in their code of professional conduct for attorneys) contract between an attorney and a client. The Fee Agreement, also known as an Engagement Agreement or Retainer Agreement, represents the understanding between the attorney and the client. For example, “I will defend you from that unfortunate animal cruelty and public indecency indictment from beginning to end, and you will pay me $500 per hour for every hour that I work on your case.” This would be a very basic Fee Agreement. It spells out what the lawyer will do for the client, and what he/she will charge.

A Retainer Fee is a necessary part of the Fee Agreement and payment arrangement among the client and the attorney. Often, an attorney takes on a client for a single, one-off representation. Because of this, and because of the way in which legal representation is front-loaded with costs (the attorney usually expends the most time, and thus bills the most hours, on the front-end of the engagement), the attorney usually requires a Retainer Fee.

This is an up-front deposit by the client which shows that the client is serious enough to put down a significant sum of cash, and assures the attorney that he/she will be paid at least for initial work done for the client. The attorney takes the retainer fee, and starts working. Until the attorney has expended hours working on the client’s matter, he/she is not entitled to keep the retainer (it remains the property of the client and the attorney must keep the retainer fee separate and apart from his own funds). Once the attorney has billed hours to the client, the attorney credits the retainer fee over to his own account. This is the easiest payment an attorney will ever receive (because to get the money, all the attorney has to do is make an accounting entry…way better than arguing with clients).

So there it is…how attorneys get paid…the easy way.

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1. In the Year 2000: Fixed Fee Legal Services?