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June 28, 2005

fees for outsourcing

Filed under: — David Giacalone @ 3:32 pm


Below are excerpts (with emphases added) from ethics materials relevant to the issues raised by Carolyn Elefant in the MyShingle post “Is There An Ethical Obligation to Pass On Cost Savings from Outsourcing?”  The topic is discussed in our post when outsourcing, just pass on the cost (June 28, 2005).


(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.


(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services;

(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;

(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and

(3) the total fee is reasonable.




Reasonableness of Fee and Expenses

[1] Paragraph (a) requires that lawyers charge fees that are reasonable under the circumstances. The factors specified in (1) through (8) are not exclusive. Nor will each factor be relevant in each instance. Paragraph (a) also requires that expenses for which the client will be charged must be reasonable. A lawyer may seek reimbursement for the cost of services performed in-house, such as copying, or for other expenses incurred in-house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects the cost incurred by the lawyer.

Basis or Rate of Fee

[2] When the lawyer has regularly represented a client, they ordinarily will have evolved an understanding concerning the basis or rate of the fee and the expenses for which the client will be responsible. In a new client-lawyer relationship, however, an understanding as to fees and expenses must be promptly established. Generally, it is desirable to furnish the client with at least a simple memorandum or copy of the lawyer’s customary fee arrangements that states the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation. A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.

Division of Fee

[7] A division of fee is a single billing to a client covering the fee of two or more lawyers who are not in the same firm. A division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist. Paragraph (e) permits the lawyers to divide a fee either on the basis of the proportion of services they render or if each lawyer assumes responsibility for the representation as a whole. In addition, the client must agree to the arrangement, including the share that each lawyer is to receive, and the agreement must be confirmed in writing



Statement of Principles [in Billing for Services and Disbursements] of The Task Force on Lawyer Business Ethics (ABA, 1996) (excerpts via



While the Principles contained in the Statements  . . . are predicated upon an understanding between lawyer and client.   To be valid, such an understanding requires, at the least, a fully informed client, whose information usually comes from the lawyer seeking agreement.  The form, nature, and extent of the disclosure will depend on the sophistication and knowledge of the client as to legal matters and business dealings with lawyers.   Thus, what might constitute acceptable disclosure to an in-house counsel accustomed to negotiating with lawyers over engagement letters and fee arrangements might be unacceptable when dealing with a business executive very knowledgeable about technical aspects of the business, but relatively inexperienced in dealing with lawyers over fee arrangements, the custom in the community with respect thereto, or the availability of alternative fee arrangements. 



  It is the obligation of the lawyer and law firm to assure that the client fully understands and agrees to the basis for billing for legal services rendered.     The client’s agreement may be by express written or oral agreement, or by implied agreement through knowing use of the lawyer’s services after the lawyer’s full disclosure of the basis on which legal services will be billed to the client.

. . . COMMENTARY . . .


The first guiding principle for the lawyer with respect to billing for legal services should be an understanding with the client of the basis for such billing arrangement through full disclosure by the lawyer.   . . .

Hourly Billing Rates 

  When legal services to be performed are to be billed on an hourly basis, the hourly rates or range of rates for lawyers involved (or expected to be involved) in performing work for the client should be disclosed to the client.. . It is suggested that the understanding or agreement between the lawyer and the client with respect to billing for legal services anticipate and expressly address prospective future changes in hourly rates, as well as, if applicable, the existence of multiple hourly billing rates for the same lawyer depending on the type of service provided.


Staffing Considerations

  Staffing is related to the issues surrounding the “Learning Curve” previously discussed, but is a distinct issue.   The touchstones for determining such issues as staffing should be cost-effectiveness and quality of legal service to the client.   Staffing should be discussed with the client if the client has expressed an interest in such information and must be disclosed if the lawyer has created an expectation that the matter will be handled by a particular lawyer or one with a certain experience level and such is not in fact the case.   . .


. . . 

  Definitions: The term “disbursements” means, for purposes of this Statement of Principles, expenses paid by a law firm to third parties and incurred in furtherance of the client’s work.   The term “other charges” means, for purposes of this Statement of Principles, all charges, including in-house costs, proposed to be charged to a client and not constituting either disbursements or fee for legal services. 


  It is the obligation of the lawyer and law firm to assure that the client fully understands and agrees to the basis for billing for disbursements and other charges.   . . .

. . .  



 . . .    What constitutes full disclosure in this area, though, can be problematic.   Firms now provide varying degrees of disclosure on policies for billing disbursements and other charges, from no written policies to detailed standard firm policies.   While a lawyer may provide this disclosure orally, the Section strongly encourages lawyers to provide this disclosure to clients in writing.

   The test of whether the disclosure provided to a specific client meets the tests of the Statement of Principles turns on whether the client fully understands the firm’s policies.   The lawyer should take appropriate steps to ensure the client understands the policies.


 With regard to other charges incurred on behalf of a client, such as photocopying and computer research, firms should charge its costs, unless an understanding with the client specifies otherwise.  “Costs” as used in connection with other charges incurred on behalf of a client may include indirect costs reasonably allocable to the service provided as well as direct costs.


. . .

   No agreement as to the basis of charges can justify knowingly incurring or billing unnecessary or excessive charges.   The lawyer’s invoice for disbursements and other charges billed to the client should be consistent with what has been disclosed and agreed to by the client.

   A client may specifically agree to pay an otherwise disproportionate share of a disbursement or other charge (e.g., all of the travel expenses of a lawyer who devotes her/himself to other matters in connection with such travel), but the lawyer has the burden of establishing that the client was fully aware of the situation and specifically approved the arrangement


Computerized Research

   A firm should describe the basis of charges it makes to clients relating to the use of computerized research (LEXIS and Westlaw).   For example, a firm may describe (i) whether the client receives credit for any discount the firm receives based on usage and (ii) whether overhead other than direct charges paid to the vendor are included.

Duplicating Charges

   A firm should expressly state its rates for duplicating services.   It should consider describing as specifically as practicable the situations when outside duplicating services would be used.   It should consider providing the client with a choice as to whether outside services or in-house services will be used, particularly when large quantities of duplicating are anticipated.   It also should consider disclosing whether any portion of the duplicating charges include a charge for overhead allocations (e.g., copy center staff time, rent on space).   The Section believes that a per page charge, if approved by the client, is appropriate.

Word Processing/Special Printing

  If a firm charges a client for word processing or other special printing arrangements, it should describe clearly when it would expect to impose such charge.   It also should consider stating the method by which it charges for word processing or other special printing arrangements (i.e., fixed hourly rate, rate per document page).

Facsimile Service

   A firm should state the basis of the charges for sending and receiving faxes.   For instance, if the rate is based on “cost” and a portion thereof includes overhead allocation for depreciation of equipment or personnel charges in addition to telephone expenses for the cost of a per-minute or per-page fax charge, it should consider stating that basis.   The Section believes that a per page or per document charge, if approved by the client, is appropriate.

Employee Overtime

   A firm should disclose the circumstances under which it expects to bill the client for overtime pay to firm staff (including paralegals) and the basis on which charges will be computed.  

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