Flat fee agreements between lawyer and client

Flat fee agreements can work well for relatively small standardized tasks (e.g. drafting a simple will, incorporating a company, completing a standard residential property conveyance) but are generally not suitable where the amount of legal work required is uncertain and/or somewhat in the control of other parties e.g. complex litigation where the issues in dispute are not clearly known until after extensive document review.

 

On longer more complex cases it is possible to negotiate successive flat fee agreements for discrete tasks e.g. review specified documents and provide opinion on merits based on only those documents; prepare Notice of Civil Claim to be filed in court, etc.

 

Flat fee agreements are often used at the request of clients who want cost certainty, but those clients should realize that the lawyers will likely (and indeed it is rational for them to do so) charge a risk premium and quote a figure for the services that exceeds the amount that the lawyer actually expects would be paid on a hourly fee basis. In other words, a client who wants to put the risk that the task may take longer than anticipated on the lawyer must expect that the lawyer will charge for bearing that risk and that if the work ends up taking exactly as long as the lawyer anticipated the client will end up paying more for the service than if an hourly rate fee agreement had been used.

 

Lawyers being paid a flat fee have a financial incentive to get the job done as quickly as possible. Indeed there is a story, and it may be just an urban legend, that a large institutional client with a steady stream of litigation defence work considered the amount it paid on settlements to be satisfactory, but was frustrated with the large legal bills it paid to defence counsel. To deal with the problem of “excessive” defence counsel fees the client negotiated a flat fee arrangement in which defence counsel were paid a set monthly fee to handle the same number of files as they historically did. The change “worked” in the sense that the amount paid to the lawyers per file was reduced, but the amount paid for settlements shot up: the lawyers who wanted to avoid spending long hours defending files for no additional payment instead advised the client to pay more to settle the files, and overall the increased amount paid to settle files was more than the savings in defence legal costs.

 

In conclusion, flat fee agreements may be appropriate for relatively small standardized tasks but difficulties arise when they are used for complex tasks where the amount of work required is uncertain and/or somewhat in the control of other parties. Clients may be willing to pay a premium for cost certainty, but should realize that over time they may well pay more under a fixed fee arrangement than under an hourly rate arrangement.