How to Draft Flexible Engagement Agreements

Attorneys in the Chicago Bar Foundation Justice Entrepreneurs Project and Legal Entrepreneurs for Justice don’t bill by the hour.  They only offer set fees. What does this mean and why do they do this?  Set fees provide more predictability and value to budget-conscious legal consumers.  Examples of set fees include, but are not limited to, fixed fees by task, phase, or case; monthly recurring fixed fees (a/k/a subscription fees); contingency fees; and hybrids of any of these options.  Additional examples can be found in the Chicago Bar Foundation Pricing Toolkit

Now I know what you’re thinking – Omg, what if the potential client and I agree on a price and then something changes?!?  We refer to those as unknowns – both known and unknown – and they’re going to pop up. But don’t worry, we’ve got you covered.  Here are some tips for drafting flexible engagement agreements for set pricing:

Memorialize the Agreement in Writing:  First things first, memorialize your agreement in writing.  Yes, you heard me – IN WRITING! No if, ands or buts about it.  Write it out. Moving on.

Scope of the Engagement.  The scope provision is one of the most important, if not the most important, paragraphs in the engagement agreement.  Outline the work you have agreed to do for the potential client in exchange for the fee they are going to pay you, when you will begin doing the work, and when you will cease doing the work (e.g., when the case or agreed upon representation naturally comes to an end or if the client stops paying you).

If the potential client has chosen limited scope representation, list all tasks to be completed during the scope of the representation and who is responsible for completing each of them.  Also, make clear what is NOT included. Disclose whether any work will be outsourced to independent contractors. See the CBF/JEP LSR Toolkit for a sample checklist, engagement agreement and other important information pertaining to unbundling.

Assumptions Upon Which the Agreement Is Based.  It is equally important to outline in the Engagement Agreement what is not included in the scope of the representation and any assumptions upon which the agreed-upon scope is based. For example, in a domestic relations case, you may offer the client a fixed fee for an uncontested divorce based upon the assumption that the two parties have already reached an agreement on all issues pertaining to their children. Another example could be that you offer to serve as an on-call general counsel for a small company on a recurring fixed fee basis based on the assumption that the company will remain a certain size and therefore only have certain needs. Spelling out these types of assumptions in your Engagement Agreement will protect you from getting stuck in a lopsided agreement where you are working many more hours than you bargained for because an assumption turned out to be incorrect.

A Right to Renegotiate Clause.  While the goal is to factor as many potential outcomes and known and unknown unknowns into your pricing structure as possible, it is often nearly impossible to do so.  Therefore, it is advisable to include a right to renegotiate clause in all your engagement agreements. These clauses should be enforced when an unforeseeable outcome (i.e. an unknown unknown) has arisen and enforcing the clause is reasonable under the circumstances. If you do choose to renegotiate a fee arrangement, be sure to draft and sign a new written engagement agreement outlining the new scope of the engagement and fee structure.

Known Unknowns vs. Unknown Unknowns.  It’s important to understand the difference between these two concepts.  Known unknowns are events that you know can potentially come up in any case within a practice area.  Examples could include an emergency hearing (especially in a domestic relations case), more in-depth discovery or responding to motions that could be filed by the other side.  Because you can anticipate that these known unknowns could potentially pop up in each case, it is on you to account for them in your pricing.  

There are two ways to do this.  The first way is to limit the scope of your representation and not include such an event in the scope of the agreement.  You would need to disclose this to the client verbally and in the engagement agreement, and then ideally you would also disclose how much it would cost to handle the task in the event it arises in the case.  For example, with the emergency hearing example in a domestic relations case, you would tell that client that since emergency hearings don’t come up in every case, you aren’t going to include them in the scope of work or fee.  But if the need to attend an emergency hearing does arise, you would be happy to enter into a new agreement with the client and represent them at the hearing for “x” dollars.  

The second approach involves taking the likelihood that the event will arise and spreading out the cost of it over all your cases within a practice area.  This is called a risk premium. Using the same example as above, if you know that emergency hearings pop up in 30% of your cases (this is a made-up number), you would take your fee for handling an emergency order, let’s say $400 (another made-up number), multiply it by 30% ($400 x 0.3 = $120) and add that amount ($120) to each family law case.

Unknown unknowns, on the other hand, are more like “Acts of God” – things that you really couldn’t have anticipated at the outset.  Examples of unknown unknowns include learning that the opposing party in a domestic relations case has a second family in another state, a building burning down in a real estate matter, or a client picking up a criminal charge during an immigration case.  The best way to account for unknown unknowns is to include assumptions upon which the scope of the agreement is based and a right to renegotiate clause in your engagement agreement.

Boundaries and Expectations. When offering set fee arrangements, it is essential to strike a balance that allows clients to feel that they can contact you without being nickel and dimed when they have new information or a new problem that is relevant to their case but also allows you to stay efficient and profitable by not causing you to spend more time on the case than necessary.  One way to proactively handle these situations is to discuss communication during the initial consultation. Ask your client how they would prefer to communicate with you and share with them your communication guidelines, why you have instituted them, and how they will positively affect the potential client. Examples of communication guidelines you might want to have, especially if your business model is based on a higher volume of cases, are requiring your client to send all communication to you via email or to limit calls to one per day.  You can include this information in a separate paragraph, in the fees paragraph, or in an addendum to the Engagement Agreement. If the potential client is not comfortable with your communications guidelines, you may want to consider referring them to an attorney who would be a better fit communications-wise.

Please note that this is not an exhaustive list of provisions that you should have within your written engagement agreement but provided to give an overall sampling and get your creative juices flowing.

Hopefully offering set fees will seem less scary with your new and improved engagement agreements!

Creating an effective engagement agreement should be an iterative process.  Can you carve out thirty minutes each month to review and improve yours?

Want to learn how to price your services? Have no idea where to start? Looking for a step-by-step guide? Check out our Legal Pricing Lab!