Legal Fees: Hourly Rate or Fixed Rate?

Answer: Clients don’t necessarily benefit one way or the other – whatever mechanism is used, it’s all about trust.

The last few years the message loud and clear to lawyers has been that we need to get away from charging legal fees by the hour and offer clients a fixed rate for the work we do. “Clients want certainty.”

Fair enough.

But they probably don’t want to be ripped off either.

I don’t know that many lawyers who are prepared to tell me what they charge for an item of work but I know a few. They are lawyers working in firms of around 30 plus partners and Legal 500 recognised coming in around band 3 or 4. For non-lawyers that means they are in firms who are recognised as being very good but who aren’t top City firms. In the regions they are amongst the leading firms in their area.

When these contacts of mine tell me what they charge in legal fees at a fixed rate for certain pieces of work I think to myself “how do they get away with that?!” In some cases they are charging a fixed quote that is three times more expensive than if an hourly rate had been agreed.

Moving away from the hourly rate model to the fixed rate model seems to have benefitted some lawyers financially but I’m not sure that was what clients had in mind when they said they didn’t like the uncertainty of hourly rates.

Typically, when asked for a fixed rate a lawyer will think about what the job would take to do on an hourly basis and then provide an uplift of an additional 30 percent to provide a cushion in case they underestimated the time they thought it would take to do the work. Not only that but they will caveat the fixed rate by using words such as “as long as nothing unusual arises” or words to that effect.

Earlier this year I engaged a lawyer myself to help with a personal matter. Here is an extract from the email exchange I had with him around legal fees:

Me: “….Can I just check: you are estimating “around £1500”.

Can you provide a fixed quote for this or not? If not what does “around” mean – what’s the exposure on fees that I would be under…..”

Him: “…..My estimate is loosely based on my charging rate of £300 per hour plus VAT but you can treat my quote of £1,500 (plus £500 for a notice) plus VAT and disbursements as effectively a fixed quote so long as the matter is relatively straightforward and does not involve unexpected complications……”

What does “relatively straightforward” or “unexpected complications” mean?

I don’t know either.

Did I go back to this lawyer to query what he meant? No – I just got on with it and trusted that he wouldn’t overcharge me because this lawyer had been recommended to me by a friend. I’ll let you know if this comes back to bite me.

What is the lawyer doing here? He’s giving me a fixed quote that will remain fixed as long as nothing unusual happens (as far as he is concerned). How is this different from an hourly rate? It isn’t much different. I would hope that I would at least get a couple of hours slack if he spends 2 hours more than he thought the work would take but after that suddenly this will turn into an “unusual” case and I’ll have to pay more.

So I have to trust this lawyer that he won’t take advantage and overcharge. The fact that I have a “fixed rate” doesn’t really change anything.

Flipping this over to the lawyer’s perspective: why should the lawyer end up doing a load of work that he can’t charge for if things don’t go smoothly? I don’t think lawyers should be expected to pick up the pieces where things don’t go smoothly and it’s not their fault. So that’s the other reason why I accepted that lawyer’s quote.

But how do I know if things have become bumpy as a result of my lawyer failing to do things properly? I don’t.

Having a lawyer charge legal fees on a fixed quote rather than an hourly rate does not mean that you are saving money. In fact you are probably paying extra for having a bit more certainty as to what the bill will be – unless something unusual happens in which case you will pay more.

So it all boils down to this: it doesn’t really matter whether your lawyer is charging an hourly rate or a fixed rate – the only way you are going to end up paying a fair price for your legal work is by finding a lawyer you can trust. Let that be your focus.