Attorney’s fees for a legal matter can accrue rather quickly. Many clients do not realize just how quick these fees build up until they receive their first legal bill. It is usually too late for clients to renegotiate payment terms after the legal services have been provided. A better approach is for clients to evaluate attorney’s fees prior to engaging attorneys. Most clients overlook this aspect of hiring the right lawyer.

This article is the first in a three part series that explores attorney’s fee issues clients should consider before hiring their attorneys. This first installment addresses the most common payment options, namely hourly, contingent, and flat fees. The article also explains the risks and potential rewards for each of these options.

Hourly Attorney Fees

Hourly fees are the most common payment option selected by attorneys. With hourly fees, the client is obligated to pay a fixed hourly rate for time the lawyer spends on the matter.

The attorney may choose to calculate the hourly amount by tracking hours in one, six, or ten minute increments. Attorneys will usually round up to the nearest increment to compensate for fractional periods. Thus, an attorney using a six minute period would round two minutes of work up to six minutes for billing purposes. Other attorneys may use whole hours as the billing increment.

The hourly fee rate usually varies based on the attorneys experience in relation to other attorneys in the firm. The hourly fee rate structure may also include an hourly rate for non-lawyers who work on cases, such as secretaries, paralegals, and law clerks.

Hourly rates for experienced attorneys in major metropolitan areas can exceed $1,000 per hour. Surveys show that the average hourly rate is probably closer to $300 per hour, with younger attorneys billing slightly less per hour. Many attorneys provide the client with a list of these hourly rates in an engagement letter or legal service agreement.

The defining feature of hourly billing is that it puts the financial risk for the legal matter squarely with the client. In other words, the attorney will be entitled to payment even if the attorney is not successful in achieving the results the client desires. This can put the attorney in a compromising position in that the attorney may have an interest in working less efficiently to generate additional billable hours.

Contingent Attorney Fees

It is also very common for attorneys to charge contingent attorney fees. Contingent attorneys fees are those paid upon successful completion of the legal services.

Contingency fees are usually expressed in terms of a percentage amount the attorney is to earn. This is usually tied to the amount of the underlying legal matter. The percentage amount of the contingency fee can vary greatly. With some legal matters, state or federal law provide the percentage amount the lawyer is to earn. With other legal matters, the attorney professionalism rules serve to impose a limit on the percentage amount the attorney can earn.

It is common to see contingent attorney fee amounts ranging from 30 to 60 percent. The attorney professionalism rules generally require attorneys to present this percentage amount to the client in writing prior to performing the legal services. This rule is intended to ward off disputes between attorneys and their clients as to the nature and amount of the attorney contingent fee.

Unlike hourly attorney fees, contingency fees may shift some of the financial risk for the legal matter to the lawyer. If the attorney is not successful, the contingency fee may preclude the attorney from earning any fee for his services. This results in the client benefiting from the legal services without having to pay the cost if the services are not successful. Given this situation, the attorney may structure the fees so that the lawyer is paid some lesser amount to pay for their services.

A pure contingent fee may help align the interests of the attorney and client. There has been debate as to whether it is appropriate to have attorneys, advocates with legal training and access to the halls of justice, to have this type of interest in the outcome of legal matters on which they work.

Flat Attorney Fees

It is less common for attorneys to charge flat attorney fees. Flat attorney fees are a set dollar amount that is paid up front or in installments over time.

Flat fees will vary greatly. In theory, flat fees represent the attorney’s best guess as to the cost plus a profit component. This is difficult to estimate for most legal matters, as even simple legal matters can end up requiring a large investment of time.

As with contingent attorney fees, flat fees shift some of the financial risk for the legal matter to the attorney. The lawyer would then come out ahead if the legal matter were completed in a shorter period of time, as he would earn higher fees than if he had performed the work on an hourly basis. The opposite would be true if the work took longer than expected. Critics of flat fees argue that this encourages the attorney to work fast, rather than smart.

Conclusion

Whether the attorney works on an hourly, contingent, or flat fee should be considered by the client before the client hires their lawyer. In evaluating these options, the client should consider the facts and nature of their legal matter and how this fits with the fee structure offered by the attorney.

Clients should try to negotiate with the attorney for the different payment option if the attorney does not offer the payment option the client desires. Most attorneys are open to considering alternative payment options if requested by the client. This type of negotiation can help save the client a significant amount of legal fees. The next installment in this three part series will address other ways to reduce attorney fees, namely, how to control expenses incurred by attorneys.