Most transactional work, litigation, negotiation, consulting, long-range business planning, and development work does not lend itself to fixed fee arrangements.
Each of these engagements involves time spans and a scope largely determined by the actions and concerns of the opposing side or other third parties.
However, there are some components of each engagement that can be isolated and a reasonable estimate can be placed on the time involved. This would involve a “guaranteed max” which is subject to risk by both the clients and their attorneys.
An example is the preparation of a contract to purchase or sell real property which, after discussions regarding the details, terms and conditions, is then within the control of the attorney, provided there are no changes.
Regarding estimates or guaranteed maximums prices, where the subject matter gets into an uncertain time span, scope, or third party intrusion, a client may be at risk with a guarantee.
Consider an example: How long will it take you to carefully read a book that has been gift-wrapped and placed under your Christmas tree? If you had to to write a check for every hour you exceeded the time you were required to guess in advance, or receive a check for every hour under, you would have to ask: what kind of book [physics, history (The Making of the Atomic Bomb or Making it on Broadway?), a novel, a children’s book, gardening, home repair, or obscurantist poetry?], size of type, number of pages, well written or not, of interest to you or on a subject you dread etc.
If you had to pay for being wrong, you would make a guess based on all these factors and then leave substantial room on the high side in case you were wrong, leaving perhaps some possibility of loss within a reasonable tolerance for risk, but also some possibility of gain on the other side to compensate for the risk. This is basic insurance reasoning and also basic business risk-taking.
Every lawyer and law firm necessarily engages in this process when estimating time, and more so, when it is demanded to “fix a fee.” So, when the conversation goes outside the “controllable” realm, there is danger on both sides, and any such “guarantee” needs to be taken with a grain of salt.
Anyone who believes an attorney is going to simply guarantee a fee without incorporating these calculations is most likely in Dreamland, unless the attorney is dishonest or incompetent, in which case, something worse comes into play—when he or she has reached the max based on hourly rate, the client may yet get some small additional work, but afterwards, watch out! No one finds it acceptable to work for free, save in extraordinary, rare, and unlikely to occur circumstances.
Moreover, any such guarantees come with a whole string of “assumptions” and conditions. When they are not in fact expressly stated, then there is likely going to be misunderstandings between client and lawyer. For example, a major Atlanta law firm recently sent the following carefully conditioned “fixed fee” proposal to a client:
- For a basic modification of the loan, lender’s counsel would prepare the documents and we would comment on them. In addition you would likely need to update title and possibly deliver an opinion letter (although we would try to talk them out of one). Assuming not more than three rounds of negotiation and amendment documents rather than amended and restated new documents, the estimate for that work would be $3,000 – $5,000. If you have to give an opinion, we could give just the enforceability opinion, which would be approximately $1,500 – $2,500 if not heavily negotiated and I assume your local counsel could give the authority opinion.
- If the bank begins the exercise of remedies and a restructure is not successful, then depending on the degree to which you wanted to slow down the foreclosure or a suit on the note and guaranty agreements you may decide to contest litigation. If you’d like I could discuss likely costs in that event with one of our litigators.
- Please note that these are all estimates based on our hourly rates and an assumption of the typical time involved in the referenced matters.
Notwithstanding the points noted above, but also on the basis of the matters discussed, we can give you some understanding via a menu of costs on a very basic “vanilla” transaction, as follows:
- To close a simple real property acquisition (contract already completed, and being submitted to title company—nothing to negotiate): $3000-$3500
- If a loan involved (no or only minimal negotiation involved): add $1500-$2500
- If a legal opinion is required: add $1500
- If problems arise on any front: add $$ based on time involved
Stated another way, the vanilla property acquisition transaction can be $3000-$3500 provided that (the assumptions or conditions):
- There are no unusual title or survey problems
- There is no restructuring of the transaction
- There are no unusual loan requirements, including a requirement for a legal opinion
- There is no attorney involvement in due diligence matters (tenant leases, estoppels are just one example)
- There is no negotiation and no issues with investors or partners
- All entities are formed and there is no need to restate or amend in order to accommodate lenders or partners
- There are no other unexpected matters or assumptions.