Solos discuss alternatives to the billable hour

This story has been corrected.

While alternative billing isn't a brand new concept, more solo and small firm attorneys are offering this option to clients to help develop their businesses as clients are more likely to ask their lawyers the question: "What do I get for paying you for your time?"

Three solo practitioners shared with Indiana Lawyer their experiences as to how alternative billing has helped their practices – and how to avoid ethical and financial pitfalls.

Jennifer Ruby, a solo in Indianapolis, offers clients an estate-planning package, with one rate for single clients and another for couples.

To get clients started, she said, she has a list of various services and the costs for each one to see what they are saving if they agree to a package deal. Clients also can choose only the services they need, especially in the case of clients who are terminally ill.

In situations when her hourly rate would cost less than the time actually spent on the package, she will charge the client her hourly rate.

"I do it the way I do because I feel like people who've never gone through the process or don't understand the need for having power of attorney or a will need a lot of education as to why they need to have those documents," she said.

"This is especially the case for young couples who haven't given a lot of thought into who's going to get their stuff, or if something happens to them and they have kids, who will get guardianship," she added.

Ruby also represents small businesses, but continues to bill those clients by the hour – unless she thinks what she's telling them is something they can get for free on the Secretary of State's Web site or elsewhere. In those situations, she may help the client find the right forms, but not bill the client her regular rate for her time.

She does this with the hope they will eventually come back to her when they do need to pay for legal advice, or they will refer friends to her.

Fort Wayne attorney Douglas Powers also offers alternative billing to clients. He was previously with Baker & Daniels for 18 years before going solo about five years ago. He said the billing alternatives have been a matter of trial and error. While at the larger firm, he said he wasn't the one who dealt with billing, so he's been learning as he goes.

One of the most complicated issues about not billing by the hourr is not only knowing how much to bill a client, but also how to keep that client happy by not overcharging, at least in tthe client's mind, while also not undervaluing the service in order to pay bills and maintain a viable practice.

He said he took some risks early on, but being a solo has helped him come up with solutions "on the fly" because he doesn't need to get approval from a committee like he would if he was working for a big firm.

For example, in employee benefits cases he represents, he said he can charge a flat fee if it's something he's already dealt with enough to know what it will likely cost.

He has also representted business disputes where the time spent and outcome were unknown at the beginning. For that kind of case, he has discussed fee options with the client that included a retainer fee. He and the client then agreed on a reasonable monthly fee and what that would include. Then, instead of asking for a third of the contingency, which he said is typical for this kind of case, he would ask for less, such as a fourth of the contingency.

However, his monthly fee would be credited toward the contingency amount he would be owed.

"So if after a year the client has paid $12,000 in monthly fees and I recover $25,000, I get a check for $13,000. And if no contingency is recovered, I keep the monthly payments as a way of sharing the risk," he said.

Ted Waggoner, managing partner of four-person firm Peterson & Waggoner in Rochester, is another proponent of alternative legal billing. He has written about the subject for national publications, including the American Bar Association Journal.

He tells his clients about different scenarios and how the fees will reflect those scenarios. To do this, he said his firm will sometimes use graphs to explain the costs – and discounts – if their legal needs go beyond the scope of the most basic situation he as the lawyer expects can happen. He will also explain the probability of different scenarios and what that could cost.

All three attorneys agreed that having an engagement letter is key to making sure the client is aware of the arrangement early on.

Waggoner added this is important for ethical reasons and to possibly address early on what happens if a client pays a lawyer for a service, but then changes counsel before that service is completed.

All three attorneys also agreed that for any lawyer considering alternative billing, it is vital to keep communication open with the client at all times, and to put the fee agreement in an engagement letter up front. They also agreed that if clients preferred hourly billing, they would honor that.

But having an alternative fee arrangement, Waggoner said, "puts you and your client on the same side of the transaction. The attorney does more research because their ethics provoke them to get the right answer for the client, but not unnecessary research if they have nothing better to do than bill the client a few hours. … The client is able to budget for the fees, and is able to determine if the client values the case as much as the attorney does."

To get started, Powers read up on alternative billing, including a number of books by the ABA and other national legal organizations.

Waggoner suggested the Web site, http://www.clientrevolution.com/, which recently posted an article about the creative cost of legal work as opposed to the time spent on the work.