It can be a real jolt to a client if fees charged differ from fees expected. Imagine how the contact in the client organisation looks to their boss when they have to say, “Sorry. I got it wrong. We’re going to go over budget. It’s going to cost us more than I expected”. Lawyers need to respect their client’s position and explain and negotiate accordingly.
Many lawyers don’t even attempt to negotiate. They just write off the overrun. But if you handle the conversation appropriately, you can help the client realise that they have obtained good value and can appeal to their sense of fairness. Our approach assumes that changes in fees are communicated at the earliest opportunity.
As with many things, how you handle the negotiation depends on the strength of the relationship. The more the client sees you as a trusted advisor, the easier this negotiation will be.
Key Stages in the Negotiation
We advocate a 6-stage negotiation with clients when fees have exceeded the estimate of what was going to be charged. We describe below the stages of the discussion and provide an example of what you might say. The script is there to be helpful, but don’t take it too literally. What you actually say will depend on your personal style, the style of the client, the nature of your relationship, the contract you agreed with the client at the outset etc.
Stage 1 – Contact the client
It doesn’t need to be a special meeting. It could easily be discussed in a meeting in which other items have been covered. What you say to raise the subject might sound something like this:
“I thought you would like to know how things stand in terms of progress on the matter”
Stage 2 – Ask for feedback on work done to date
Discussions on fees should usually not be held in isolation. The issue to be considered is ‘value’ not ‘cost’. If it is possible to discuss briefly the good work performed to date, this should be done. It might sound something like this:
“I am pleased with the results of what we have achieved to date. [Give comments on specific aspects of the matter that you believe have gone well….perhaps, a negotiation, with the other side]. From what you have said, we believe you are pleased. Is that right?”
Stage 3 – Explain why the work has cost more than the estimate
Once you feel have adequately reviewed the work to date, you need to focus on the issue of costs. We recommend that you provide a factual explanation as to what assumptions you had made to derive the estimate and what has happened that deviates from these assumptions and why these things have happened.
“We made the following assumptions……… More time has been spent on certain aspects of the matter than we expected. I would like to explain the difference and obtain your approval for it.”
Stage 4 – Ask for the client’s reactions
This negotiation needs to be a dialogue. If the client does not understand, or needs additional information, you need to know this. It can help to put your question in a positive frame, using phrases such as:
“In light of the extra work that was required, I hope that you consider our fee adjustment to be fair. Is this acceptable to you?”
Stage 5 – Deal with any concerns or misunderstandings
The client may want to hear further reassurances, perhaps specifically about the timing of this request and why the issue hadn’t been raised earlier. These could be provided by something like this:
“Had we anticipated this extra work, we would have had this discussion earlier. Knowing that you had time constraints, we felt it was important to proceed on your behalf to minimise any costly delays.”
Stage 6 – Reach an agreement on what to charge
After reaching an agreement, it can be important to finish the conversation on a positive note, such as:
“You have been extremely reasonable and we are grateful for that. I assure you that these variances are not common and should not occur on other work we will do for you in future.”
Given how much money firms are writing off, it’s got to be worth having a go at these negotiations. You may not feel comfortable renegotiating on fees, but there’s little to lose and much to gain! And if it’s done well, the honesty and openness expressed by using the process can even help build a stronger, more trusting relationship.