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Towards fixed fee agreements

Towards fixed fee agreements

By John Colonna

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When you enter into a fixed fee agreement with a client, it is important that the scope of work is clearly defined.

There is universal criticism among the judiciary of hourly billing as a means of pricing legal work. The Chief Justice of Western Australia has said in a speech titled “Billable hours past their use-by date”1 that the legal profession should “enthusiastically embrace the pressure for change and generally adopt alternative methods of charging for services rendered”.

It has long been suggested that time based billing:

  • rewards inefficiency
  • focuses on the billable hour rather than the value to the client
  • discourages innovation.

The Legal Services Commissioner received 1340 new complaints between 1 July 2015 to 30 June 2016. Fifty three per cent of those complaints were in relation to costs/bills and defective costs disclosure communications.2

With increased regulation and pressure on lawyers to ensure that clients are making informed choices in relation to legal costs, it is imperative that law practices embrace alternative fee arrangements that are more client focused and transparent.

What are fixed fee agreements?

A fixed fee agreement is where a law practice and client, from the outset of a matter, agree to fix a price for the provision of legal services.

Fixed fee agreements:

  • provide certainty to the client in relation to legal costs and allows the client to make informed choices in relation to whether they wish to pursue a matter
  • deliver transparency and remove the cost tensions from the solicitor/client relationship
  • encourage law practices to implement processes and procedures to complete work more efficiently.

Are fixed fees suitable for all matters?

Fixed fee agreements are appropriate in transactional type matters and where matters follow their usual course.

Fixed fee agreements are largely used in the following areas:

  • conveyancing
  • wills and estates (eg, preparation of a will, enduring power of attorney and application for probate)
  • patent work
  • family law (eg, divorce, parenting orders, property settlements).

What are the cons of entering into a fixed fee agreement?

One of the dangers of firms entering into fixed cost agreements isot scoping work appropriately and determining what is in and out of scope.

It is critical that the scope of work is clearly defined when you enter into this type of agreement with a client. If work is not appropriately scoped, you could find yourself doing a lot more work than what is billed to the client.

The scoping process needs to be quite specific as to what types of work are excluded and how you expect the legal matter is going to be conducted.

Law practices must undertake very comprehensive assessments of the risks in the matter and ask the following questions:

  • who are the lawyers on the other side?
  • who is the counsel on the other side? What do we know about him or her and how they generally conduct litigation?
  • who is the judge?
  • are third party stakeholders involved that might impact on the matter?

John Colonna is the principal costs lawyer and manager of LIV Costs Lawyers. John is able to assist you with a range of costing services, including preparation of assessments, bills of costs, negotiations of costs and appearances in the Costs Court.

T: 03 9607 9403
E: costing@liv.asn.au
W: www.livcostslawyers.com.au

1. Launch of Law Week, 2010, 17 May 2010.

2. For further information see Complaint Statistics: http://lsbc.vic.gov.au/?page_id=3108.


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