Last week I kicked a series about a favorite topic of mine: how law firm partners and their clients negotiate about fees. The short answer is that many do so rather poorly, and I laid out some of my diagnosis in the first post. Today, I want to dig into a rather easy one to remedy, the lack of effective preparation.
The first and most important gap in what is a critical moment in the lawyer-client relationship is that the participants do not treat the fee discussion as an important negotiation. Clients often come in with little preparation, defaulting to just asking for a discount from whatever outside counsel proposes as a rate or a total fee. Law firm partners often approach fee discussions as if they are not really a negotiation, but an unavoidable awkward moment where they have to give voice to some kind of an estimate of what they expect to bill for the work, or to profess that it’s “all too unpredictable” even to do that. Considering what is at stake for both sides, not only in terms of what it will cost the client and whether the work will be profitable for the firm, but also in terms of how the fee negotiation impacts the working relationship between the parties, such a simplistic approach amounts to gross negligence on both sides. This is not only a discussion about how much Party A will be pay Party B, but it is an important example of how lawyer and client will work together during the engagement. How each party perceives the other’s handling of this issue affects how trustworthy they think the other is; it sets expectations about how they will communicate as they work together; if mishandled, the negotiation even creates some baggage they will have to carry around, about who may have bested whom and how to get back to even.
To improve how lawyer and client negotiate fees, the first and easiest thing to do is to start thinking about this as a negotiation, where the parties have interests to be satisfied, they have stakeholders to whom they must explain the outcome, they have walk-away alternatives to consider, and they have a need to work well together after they negotiate. Below is a simple checklist from a presentation I gave recently, based on the Harvard Negotiation Project model, the gold standard for constructive, collaborative negotiations:
- If you just think about your “gives” and “gets” that’s all you will do at the table. Think broadly about the problems you are trying to solve (certainty? value for money? profitability? appearances?) and some different ways to address them.
- Whether you have lots of time, or a little, some structure and a definition of success make preparation more efficient:
- What are their interests? Ours? (Is it just the standard list, or is there something special about this one? How do the relative priorities among these interests vary by stakeholder?)
- What are some possible creative options to structure fees? (Note: it will be useful to invent more options than you will realistically consider.)
- What are some applicable standards or criteria? (Even if we both agree, how will we explain to our stakeholders that this is a “reasonable” outcome? How would we characterize the precedent we are creating?)
- What is our walk away alternative? How does theirs look? (Do we want to talk about it?)
- How detailed and specific a commitment do we need at this point? (Do we want clear and objective formulas or should we leave some aspects open or treat as discretionary? If so, should we at least try to articulate a shared view of how that discretion might be applied?)
- What messages do I want to communicate through this negotiation?
- How can I use this negotiation to build the kind of relationship we want to have?
- Two heads are better than one: pricing consultations make a huge difference
- Good habits pay off: if you prepare estimates, even when not required, and check to see how you did, you get better at estimating and at explaining your estimates
Using this checklist as you prepare will not guarantee a successful negotiation, but it will start you down the right path.