What You Should Cover in an Effective Client Contract
This week we are going to continue talking about “administration” as one of the elements that makes up the five parts of every business in the world. This week’s “tip” deals with client contracts.
It is not yet mandatory for lawyers to enter into a written contract with every client, but it certainly is good practice. The Missouri Bar Association has prepared a book called the “Client Keeper” you can get through the Missouri Bar Continuing Legal Education department which has sample contracts in hard copy and on disk.
I have seen lots of different contracts that lawyers use with their clients, and I have tried to put all the information I thought was helpful from them into the contracts and engagement letters I use with my clients. Feel free to use any of this information in any way that you wish, and if you think that there is something that needs to be added please let me know. If you think there is something here that is a problem, contact me so that we can discuss it and hopefully improve the documents for everyone’s use.
Last week we talked about the use of New Matter Reports and the fact there is a signature block on those New Matter Reports and when signed by the client, the New Matter Report can actually become a contract.
In the past, my firm extensively used tailor-made these contracts for each of the various areas that we worked in. We had a contract for domestic cases, work comp cases, personal injury cases, hourly rate matters, flat fee matters, criminal matters, general civil litigation, etc. Now, in lieu of actual contracts, we use Engagement Letters that when signed by the client becomes a contract.
There are many of you that are reading this article that may still want to use an actual contract form for the agreement you will make with your client, and so I will discuss those items in this column and we will deal with Engagement Letters next week.
We all remember back to law school the elements of a bilateral contract: A promise for a promise, consideration and for contracts that fall under the Statute of Frauds a document that is signed by the party to be charged. The other items that you want to put in your contract are as follows:
1. Title: Contract;
2. Legal Services to be performed:
a. Name of the firm;
b. Name of the client;
c. Type of matter; and
d. Whether or not an Entry of Appearance will be made.
3. Cooperating attorneys and fee sharing authorization (Virtual Law Firm involvement);
4. No representations or guarantees;
5. Contract cancellation at any time by either party:
a. Notice of termination to be sent by certified US mail.
6. Settlement authority;
7. Conditions to Engagement:
a. Sign contract;
b. Execute authorizations, wage, medical, other;
c. Provide fact chronology and documents;
d. Cooperate with attorney; and
e. Pay initial retainer and subsequent retainers as needed,
deposit in general account.
8. Fee arrangement:
a. Agreement to pay legal fees;
b. Domestic case:
(1) Price for simple default
(2) Price for contested case
c. Provisions under workers compensation that no fee would
be payable out of amounts representing payment for temporary
disability of disfigurement or reimbursement of medical expenses
for treatment and examination unless covered by other insurance;
d. Cap for attorneys fees;
e. Charges based upon any of the following:
(1) Minimum base charge
(2) Minimum charge per hour
f. Format for the statements:
(1) Itemized
(2) For services rendered
(3) Other
g. Right to withdraw if statement is not paid within thirty (30) days
from the date of invoice;
h. Indication of how hourly time is billed:
(1) Quarter hours
(2) Tenths of hours
(3) Other
i. An hourly rate schedule;
j. Timing on when contingent fee percentages change, such as
when a case is first taken, once it is filed and when it reaches one
month before trial (e.g. 33 1/3 %, 40%, 50%); and
k. Provisions with regard to contingent fees for appeals.
9. Expenses (billed monthly or out of settlement):
a. Photocopying;
b. Long distance telephone calls;
c. Postage charges;
d. Word processing;
e. Telecopier (fax usage);
f. Court Filing fees;
g. Court reporter fees;
h. Mileage;
i. Travel cost;
j. Parking charges;
k. File storage fees;
l. Office supply fees;
m. Consultation fees for outside professionals (attorney consultants,
experts, etc.);
n. Exhibit and witness fees;
o. Delivery fees;
p. Service of process fees;
q. Subpoena fees; and
r. Other necessary and incidental expenses.
10. Record Retention, authority to destroy file five (5) years after conclusion;
11. Attorney’s Lien, attorney work product;
12. Notice: name, address, phone, fax, e-mail changes;
13. Questions or comments invited; and
14. Signature line for the firm and a signature line for the client.
When you are tailor-making your contracts for specific areas that you are working in with your client, you need to review in your mind exactly what the contractual arrangement is going to be with the client and be sure that each of those specific elements are in your contract. In a personal injury case you obviously want to make a provision for how the expenses are going to be determined as well as whether or not they are off the top before splits or out of the client’s share after attorney’s fees are deducted. Check in your area for the local custom to keep up with the competition.
Even though it is not mandatory to have a written contract with clients on every matter, if there is going to be any type of fee splitting with another attorney, that agreement with the client must be in writing. You will remember that I talked previously in one of my “tips” on marketing about my concept called a “Virtual Law Firm.” Every one of my written agreements with clients has in it a provision that I have the right to work with other attorneys on my client’s matter and to split fees with them with regard to agreements that I make with those attorneys. I also have any attorneys with which I am sharing the work and splitting the fees with enter into a written contract with the client that provides for that same information in their contract about working with other attorneys and splitting fees. As I previously indicated in the “Virtual Law Firm” concept, both law firms are on the hook from a malpractice point of view, and both lawyers have an attorney client relationship with the client. Both firms are obligated to be sure that the work is done on a timely basis and that it is in keeping with the status of performance of lawyers in the same or similar circumstances.
It is amazing to me how few attorneys get a contract with every client that they perform legal services for, and on every matter that they perform legal services for every client. It just seems so obvious that having a written agreement with your client does away with any problems as to what the fee arrangement was, whether it be hourly, a flat fee or contingent. It is hard to fathom why you would want to do business with somebody without having a written contract. Just think of all the headaches that you would avoid with such a written contract. Taking just a few minutes to have some type of a written contract with your client makes all the sense in the world. Any of the items that I have set out above can be added to your contract and you can make those contracts in any form that you like. Often times business supply stores will have form contracts that you can simply put your information into it and make any adjustments that are necessary to make it acceptable for both you and your clients.
One of the best ways to avoid a fee dispute with a client is to have a written contract and to scrupulously follow and complete what you say you are going to do in the contract concerning the work to be performed and the bills that you are sending. There is nothing like the written word, signed by the party to be charged, to bring fee disputes to a grinding halt. There is nothing like a written contract to help you get your bill paid on a timely basis and hopefully paid in full.
Whether you have a contract with a client that is simply having the client sign the New Matter Report, or whether you have the client sign off on an actual contract or engagement letter, having a written contract with every client for every matter that you are handling on behalf of that client simply is good practice and good business. In the future with as many complaints, both fee and disciplinary complaints that are being made, I believe client contracts will eventually be mandatory with every client. If you don’t have a system that at least prompts you to have a contract with every client that you are going to perform legal services for, set such a system up, and make the existence of a contract for legal services to be rendered a given, as opposed to an exception. Make the exception the circumstance where you have such a good relationship with a client on an ongoing basis that there is no need for a contract each time that that client hires you to perform some additional services for them. Set up the system so that your office staff will not even open the file without the written contract, unless you sign off or New Matter Report indicating that in this particular instance an exception is being made and a contract is not needed. Set up your systems in your office so that the office staff becomes the monitors of the checks and balances of being sure that the files are opened properly. The lawyer should simply get into a routine of being sure that there is a contract with every new client and new matter. I have often said that setting up systems so that lawyers don’t have to “think” is the best thing to do, because lawyers are generally so busy and under so much stress that unless you make items like contracts a matter of routine, they will often be overlooked and will not become “standard operating procedure” for your office. Set up that system now!
Next week we are going to talk about engagement letters and how these engagement letters can be used as contracts with your clients. There is nothing wrong with using New Matter Reports as a contract or using form contracts for each matter, but I have found that engagement letters simply lend themselves to better communication with my clients about what it is that I will be doing for them and what I expect of the client. I have almost totally switched over to the use of engagement letters as the type of “contract” that I use with my clients. I think that you will find some of the ideas that I have in these engagement letters to be quite helpful to you in your practice and will help you become more efficient, productive and financially secure by entering into the proper engagement letter with the proper client for the proper amount of legal work to be done on the proper file.
Talk to you next week!
Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.