This post continues my discussion of remunerative practice models that improve access to justice. I spent a good bit of space in my post on unbundled services, also known as limited-scope retainers, dumping on the comprehensive service, billable-hour model of legal practise and explaining why I believe it is unaffordable and unpalatable to clients. In this post, I’m going to talk about another alternative to the billable hour, flat-rate billing.
The idea of adopting a flat-rate approach to work makes most lawyers pretty twitchy. The fundamental genius of the the billable-hour approach is that you are covered, no matter what. If a file goes badly sideways, if the research is more obscure and tedious than expected, if fresh affidavits are delivered on the eve of an application and must be replied to, the billable hour makes sure you can charge for each and every tenth of an hour you spent on the matter. (Family law matters are especially prone to unexpected expansion, which is the main reason why they are so undesirable as pro bono work.) However, with a careful choice of services and some carefully laid out parameters, flat-rate billing can be profitable and generate income while improving your satisfaction with your practise and your clients’ view of the value of the services you have rendered.
In my last post, I mentioned Julie Macfarlane‘s finding, in her report Identifying and Meeting the Needs of Self-represented Litigants (PDF), that of the people she spoke to who were litigating without a lawyer, 53% had been represented by counsel. About 75% of these people had paid for their lawyer out of their own pockets, or with the benefit of loans from someone else’s pocket, but they had since run out of resources and could no longer afford to continue with counsel.
In that post, I also argued that the billable-hour approach is, from the consumer’s point of view, incredibly unappealing.
You walk into the lawyer’s office. The lawyer can’t tell you how long it will take to resolve your case, the steps and applications that will be required to wrap things up or what sort of disbursements will be necessary, what the end result will be, or what the total cost will amount to; all your lawyer can tell you for certain is his or her hourly rate, and that isn’t guaranteed to remain the same throughout the carriage of your file. Then the lawyer asks you for a significant chunk of change, usually not less than $5,000 and often well north of that, to get started on the project.
Imagine the desperation that would impel someone to pay for services on this basis. Thankfully, we enjoy a near monopoly on legal services, and if the client is not prepared to proceed without the benefit of counsel the requested retainer usually gets paid.
Both of these issues can be partially but meaningfully addressed through a flat-rate service model. Under this model, the client can pick and choose which and how much of a lawyer’s services he or she will buy, at a fixed rate which is determined up front. The client and the lawyer are protected from the client’s frustration if a legal issue is not resolved before his or her resources are exhausted. The lawyer gets a file with a fixed scope of required labour and a minimal potential of becoming a dog file, with payment up front and a minimal likelihood of collections issues, and a file free from from the tyranny of recorded time.
Flat rate services
Of course, not every legal problem is well-suited to a flat rate retainer. In general, you should be looking at services that:
- have a low potential to go sideways;
- are limited in scope; and,
- can usually be accomplished within a predictable period of time.
Solicitors’ work is a good place to start. In my practice, the sort of work I usually handled on a flat-rate basis included:
- non-evaluative views of the child reports (for people involved in Provincial Court proceedings I would charge $500 for one child, plus $250 for each additional child);
- cohabitation, marriage and separation agreements ($1,500 generally, but more depending on the complexity of support, property and tax arrangements); and,
- desk-order divorce applications ($1,500 plus disbursements, or $2,000 plus disbursements if the circumstances relating to the payment of child support were complicated).
Other services that leap to mind as a good fit for a flat rate include:
- initial consultations;
- drafting of affidavits and financial statements in family law matters;
- uncomplicated adoptions;
- wills, living wills, health care directives and powers of attorney;
- temporary and standby guardianship agreements;
- residential or commercial leases;
- second opinions, file reviews and evaluating experts’ reports; and,
- assessment of potential appeals.
Kahane Law Office in Calgary offers services on a flat-rate basis in the areas of real property, wills and estates, corporate law and family law. Here’s part of their posted rate schedule for corporate and commercial matters:
Kahane will also do uncontested divorces for $1,499 and separation agreements for $1,999. Here’s part of their sensible page on their family law rates; note the discussions of “why all family law matters cannot be flat rate” and “what our family law legal fees include:”
From what I remember of Open Door’s Denman Street office, this schedule was also printed on a sign that hung in their front window, facing the sidewalk, so that everyone knew exactly what their rates were without the necessity of an initial consultation. Pretty cool.
Even some barristers’ work can be handled on a flat-rate basis, however the rate charged for such services will need to reflect the risk of things going sideways, and I’ll talk about the calculation of flat rates shortly. (Be aware of the potential need to disclose the limited nature of your retainer if appearing in court for a client.) Obvious candidates include:
- certain interim applications (I’ve done this for applications involving child support, restraining orders and protection orders and it’s worked quite well);
- applications for interim and final orders going by consent;
- speaking to sentence in criminal matters;
- representation at negotiations or mediation;
- representation at arbitration;
- conduct of or representation at examinations for discovery; and,
- representation at case conferences and judicial settlement hearings.
Frankly, there’s no reason why even trials couldn’t be handled for a flat rate, although I expect that the rate would be quite high given all of the uncertainties.
BBL Family Law of Norwich has taken the bull by the horns and, in addition to the usual menu of flat rate services relating to divorces and agreement, offers a predictable payment model for matters that must be resolved in court.
BBL charges a fixed rate for disclosure, a fee if an action must be started, a fee if the matter goes to dispute resolution and another fee to take the file up to a final hearing. What they don’t offer a fixed fee for is the cost of representation at that final hearing.
Calculating flat rates
From the lawyer’s point of view, the essential math involved in establishing a flat rate requires a balancing of (1) the amount of time usually required to accomplish a task with (2) the probability of things going sideways and (3) the maximum amount of time that will likely be required to accomplish the task if things do go sideways. Ultimately, you want to come up with a rate that:
- is affordable for the client;
- reasonably reflects the time savings realized through the use of templates and previously prepared material;
- reasonably reflects the cost efficiencies of work performed by legal assistants;
- is profitable for you in the short-term; and,
- balances the money lost on files that get out of hand in the long-term.
You might also want to consider the value you’re providing to the client when fixing your rates. In an excellent article for the Lawyers Weekly, well-known Calgary lawyer, raconteur and bon vivant Lonny Balbi wrote:
There are several principles that can be gleaned from looking at other businesses and how they have dealt with the pricing model:
1. The customer has a fixed price up front. Most solid business models are not based on time. The risk is shifted from the customer to the business. In many cases, the customer is willing to pay a premium for that shift.
2. A service that is needed is worth more than a service that has been delivered. Most lawyers understand this concept, but do not use it in practice. The more that a client needs the service you are willing to provide, the more it is worth prior to the delivery of the service. It is once the service has been delivered that problems in collection and complaints arise.
3. Focus on the customer, not the cost to produce. The value equation to the customer is the most important aspect in pricing. The cost to produce the good or service is not important to the customer. Focus on the customer’s needs, wants and values in order to determine an appropriate price.
4. Look at value to the customer. Each customer has different value propositions. These may include costs, security, fear, social status, speed and delivery. Lawyers must dig down and discover what the customer really wants in order to deliver the best value to that customer. Determine the value the customer is looking for, and then exceed those expectations.
Lonny, I think, has a point.
My flat rates, with the exception of the fees for my views of the child reports, usually amounted to more than what I would have likely billed performing the task on an hourly basis, and thus generated more income for my employers than would otherwise have been the case. However, the extra amount I charged helped to offset the time spent on files that became unexpectedly complex. The amount charged also gave my clients the benefit of a fixed price up front, let them know exactly what they’d be paying, and recognized the value the service would have for the client when rendered.
If you decide to offer services at a flat rate, here are some tips and suggestions.
1. Use a written retainer agreement that spells out exactly the services you are going to perform and the rate you are charging. If there are any related, ancillary services that could be included in the work you are performing, like filing a separation agreement you have drafted in court, state whether you will or will not be performing those services.
2. Carefully consider the amount of your flat rates. Your rates should take into account affordability to the client, the value of your services to the client, the time you would normally spend performing those services, the economies of templates and form-based processes, and the cost to you of files that go sideways.
3. When performing services that have a high risk of going sideways, add an escape clause to your retainer that allows you to convert your work from a flat rate to an hourly rate. However, if you adopt this approach, you must be crystal clear about the conditions that will trigger the change and the notice you will give to the client, and you must rigorously track your time from the outset of the file.
4. Review your retainer agreement with your client and ensure that he or she knows exactly what is and is not included in your flat rate.
5. Ask for payment at the start of the file, rather than waiting until its conclusion to bill.
6. Be clear about any disbursements that are foreseeable and whether you or the client will be covering those costs. If the amount of disbursements is known, ask the client to provide you with funds to cover those disbursements, in addition to your flat rate, at the start of the file.
There are other ways that flat rates can be used, even in the context of a billable-hour retainer, and I’ll talk about those in a future post.