Legal Fees: Retainer Arrangements

Or at least they should be. If a lawyer has a client who pays standard rates and never questions the bill or hours spent, then that lawyer is in an enviable position. If the standard rate is already very competitive then the client may be ok with this arrangement.

But most lawyers are willing to lower their hourly rate in exchange for a retainer arrangement with their client.

What are retainer arrangements?

They can take various forms.

A classic example is where a client pays a fixed rate every month for, say, 12 months and in return the lawyer offers a certain number of hours per month. In some retainer arrangements the client needs to use up the time credits in a month otherwise they will lose them – the time credits aren’t carried forward. In other retainer arrangements, the time credits may be carried forward in which case the arrangement is more like one where the client is simply buying time in bulk, to be used as and when the client wants throughout the year.

Either way, the client ends up paying an hourly rate that is less than standard. This is because it is valuable for the lawyer to know that there will be a set amount of cash coming in to the firm at a certain date every month – it provides cash flow certainty. This cash flow arrangement can also benefit the client – it gives the client the opportunity to spread the cost of legal services throughout the year.

The other way in which retainer arrangements should benefit both client and lawyer is that they should remove or at least seriously reduce the need for there to be discussions around what the cost of a piece of work is going to be. This means that time is saved and, let’s face it, no-one likes discussions around fees and what they should be.

Just expanding on this point above: if you are a client you may be thinking “yeah, Neil, you would say that – of course you don’t want a check on what you do by having to give estimates on how long things are going to take and at what cost” but wait a minute:

You aren’t going to sign up to a retainer arrangement unless you trust the lawyer. So retainer arrangements are for where you are satisfied that you have found a lawyer who is good at their job and who you trust won’t overcharge you.

A client should see a lawyer who is on a retainer arrangement as performing a role like an in-house lawyer i.e. an employee. Do you ask your employees what it’s going to cost to do a piece of work? No. They are paid a salary and they just get on with things.

Let’s say – extreme example – I go on to a retainer arrangement where my hourly rate is the equivalent of £30 an hour. Aren’t you now going to let me just get on with things rather than we have discussions around how long each item of work is going to take? I think you would probably just let me crack on because you know that you are getting a great rate. So let’s come up with a more realistic example: If my standard hourly rate is £300 per hour but our retainer arrangement brings my rate down to £150 per hour – and don’t forget you have already worked with me for a while so you see how I do things – I would expect you to let me get on with the work you sent me rather than give time estimates for each item that we need to agree on. Don’t forget you will see how my time accrues by time reporting and you can always shout if you aren’t happy.

So, basically, a lawyer should reduce their rate (which the client benefits from) in return for cash flow certainty (which the client also benefits from) and in return for not having the hassle of having to estimate how long it is going to take to do things every time work comes in (which the client also benefits from given the trusted relationship).

A win-win.