March 2, 2014

Practical tips for offering a fixed fee cost agreement

Time costing has long been criticised for leading to inefficient billing practices and inflated legal costs.  As an alternative to time costing, firms have been offering their clients the option of a fixed fee. 

Fixed fee costs agreements often have a high level of client acceptance because the client knows the exact amount of their legal costs, and they are able to make realistic arrangements about how to pay their legal bills. 

If you are considering providing a fixed fee option to your clients there are a number of issues to consider:

  1. The work: make sure you clearly set out what IS and IS NOT included in the fixed fee. How will work that is not covered be calculated? 
  2. Will you offer one fixed fee or break the matter down into stages and charge a fixed fee for each stage? The utilisation of stages is beneficial in more complex matters where the provision of accurate estimates is difficult. Staging the matter is also useful for interim billing and cash flow. For a run-of –the mill matter one fixed fee will probably be sufficient. 
  3. Calculate your internal costs: experience in similar matters is important. If possible prepare a database of previous work and calculate your internal costs. Once your internal costs are calculated determine the margin you will charge on top. 
  4. Variations from the fixed fee: sometimes the work that is required changes substantially. For example, events may occur that could not have been reasonably foreseen or the instructions provided may have been inaccurate. If this occurs the fixed fee may need to be revised. Any variation to the fixed fee should be in writing. 

Fixed fee costs agreements, like any other agreement, must be both fair and reasonable. The fact that the client has agreed to a fixed fee does not mean that the lawyer cannot be subject to professional discipline for charging excessive legal costs. 

Fixed fee agreements can benefit clients as well as law practices, but the fee and the costs agreement must be thoroughly thought through. 

If you would like any advice on how offer fixed price agreements, please contact one of our expert cost assessors on 1800 267 846 or visit qics.com.au.

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