If you’ve ever tried to set a fixed or flat fee for a project, you know it’s often a difficult and challenging process. Chris Marston at Inside the Future of the Law Firm and Carolyn Elefant at MyShingle.com both recently commented on the process, and note that despite the challenges, it has some significant benefits over the traditional hourly rate method.

They also describe differing views on how to handle “overages,” i.e., when a project exceeds the fixed fee. Chris takes the position that clients should understand up front that they will be expected to pay additional fees if the work exceeds the fixed fee estimate:

This is where I take the axe to the linear thinking log and remind them that customers do not expect their attorneys to have a crystal ball and tell them the future. They are not asking us to put a price on all of the uncertainties. They DO expect a price on the things that are certain and even likely to happen. They would not be hiring you unless there was at least a certain amount of legal work that is certain or likely to happen. Therefore, there is no excuse for being lazy and billing by the hour when you know that a certain amount of work will occur, and you need only care enough about your clients to actually take a moment to tell them how much that will cost (it is the least you can do, really!). Then, there are no surprises. If the work goes outside the scope of what is known, your customers will understand that more action needs to be taken at an additional charge.

Carolyn takes the opposite view:

When I give a flat fee estimate, I will eat the cost unless the extra work is caused by the client (e.g., client lies about material issues in the case) or created by unforseen events (e.g., change in a 50 year precedent that leads to multiple appeals). My feeling is that as the attorney, I am the expert on estimating fees, so I should bear the risk of an inaccurate estimate. Giving flat fee estimates and then charging clients for extra work puts all of the risk of the inaccurate estimate on clients. Maybe that’s what’s considered good business for lawyers, but I just don’t think it’s fair.

As a rule of thumb, I use Carolyn’s approach and stick to the quoted fixed fee unless the overage was clearly the fault of the client (which is rare). However, Chris’ approach would work well if you have a client that is looking for more of a budget estimate and not a fixed fee. In either case, client communication and good project management is critical to making it work for both the lawyer and the client.

Fixed Pricing is Obvious. . . So Why Doesn’t Everyone Do It? [Inside the Future of the Law Firm]
Flat Fees Are Fine, But Lawyers Can’t Have It Both Ways [MyShingle.com]
Clients are Entitled to Budgets [The Devil’s Advocate via MyShingle.com]