What does it cost a business to have its contracts reviewed, redlined, and negotiated?

An “average” sale, purchase, rental, or lease contract takes about an hour or two to thoroughly read and spot issues; a one pager takes less and a multi-document takes more.  Once the attorney is familiar with the subject matter and intent of the parties, the redlining begins.  If the original document was drafted from a one-sided perspective where all of the risk is shifted from the offering party, the edits will be significant.  If the document is generally balanced (where it is a matter of watching out for the occasional slips into greed and selfishness) only a few edits may be necessary. 

Attorneys are taught to “zealously represent their clients.”  To most, this means attempting to shift all the risk, and “while I’m at it, why not slip a few things past the other side.”  The typical response is to take a position at the other extreme with a goal of meeting in the middle.  The redlining process attempts to tip the scales and to find all the “gotchas”.

A seasoned, business-oriented attorney will recognize that client representation means doing business, not negotiating, disputing, and litigating.  He will represent your interests, rather than your position, and offer a balanced agreement to begin with.  In most cases, the other side quickly agrees to consummate the deal because it is such a welcome relief from the many terrible contracts being pushed on businesses.  As an attorney representing the receiving party, a balanced response to a one-sided offer is usually met with the same welcome relief.

Given the range of balance or lack thereof in the offered document, redlining (marking words for deletion and inserting new language) may take two to three hours. 

After the review and redlining, all that information must be communicated to the client so he knows where he stands.  The client needs to make business decisions on which risks to accept and which provisions to negotiate.  (Notice that we are not talking about rejecting the offer.  The business folks want to do business and it is the attorney’s job to facilitate the transaction.)  Communications may take another hour or so depending upon how much detail the client needs.

In some cases I have personally read, redlined, and responded to clients in an hour, but the average business contract seems to take about three to four hours for a complete review.  Add in a review of negotiated terms, and the average attorney time may be five or six hours from start to finish.

Again, it all depends on the document and the parties.  The time invested by the attorney in the review and editing can vary significantly.

Why go through all that?  Why pay an attorney to read your contracts?  Because, it is much less expensive to avoid problems than it is to fix them.  You say, “But this is going to cost me a small fortune!”  Not if you have a working relationship with your attorney.  An experienced business attorney in solo practice in Dallas, TX typically charges $300 to $350 per hour.  However, if he can depend on you for repeat business, he will likely discount the fee by as much as fifty percent.  Give him the equivalent business of full time in-house work and you can probably hire him for a third of his normal hourly fee.

Bottom line on what it costs?  As any good attorney will tell you, “It depends.”  It depends on all the facts.  The fees will vary.  If you want a fixed fee for a contract review you can hire in-house counsel to conduct all of your reviews for a salary.  If you insist on a flat fee for a single contract review, expect to get canned templates and be content with marginal advice.

Was the original question answered to your complete satisfaction?  Probably not, but at least you now have a few reference points from a business oriented attorney with more than thirty years of experience.

It may be legal, but is it right?

Why hire an attorney who has a business background?

If you run a business, you want your entire team aligned behind your efforts.  Obviously, the Sales and Marketing personnel are interested in revenue and number of units sold, but does your support staff understand the sales process as well as fixed, variable, short term, and long term costs? 

Your legal counsel should be as interested in business as you are.  Counsel with a background in business can relate to your problems and offer solutions that make sense in your environment.  The legal experience provides the boundaries while the business experience provides the innovation and practical understanding.  In-house attorneys handling transactions need to be even-keeled, patient, detail-oriented individuals who can catch potential problems to save your business from disaster.  To do that, your counsel needs the breadth of knowledge from years of exposure outside of law schools, law firms, and legal departments.  To be a true team member, the individual you hire for this role should be comfortable interacting with all levels within the company and should be a potential resource to be tapped should a need occur on the business side.

If your legal counsel cannot relate to the truck drivers, the work crews, the sales reps, the office staff, the accounting team, the executives, and the board members, you may wish to consider a change.  Consider bringing in a well-rounded individual to represent your interests.

It may be legal, but is it right?

Some thoughts on legal fees

It is no surprise that few potential clients with prior experience hiring legal assistance ask about the cost to address their current legal problem. Most understand the complexities involved or they trust the professional. After all, we don’t ask a doctor how much it will cost to address our physical problems, or how much the plumber will charge to fix a leak under the house. Often, it is difficult to provide an exact answer because we don’t have all the facts – and we can’t know the facts until we spend time working on the problem. However, once the problem is reduced to actual tasks, it becomes much easier. For example, a doctor can tell you how much a splint costs even though he can’t tell you which splint he might use until he performs the examination. A plumber can tell you how much a section of copper pipe costs but he can’t tell you how much pipe he will use or how much digging he will have to do until he makes his examination. Likewise, an attorney can provide the prices for mailing, paralegal support, and copying but he won’t be able to tell you how much it will cost to review a contract, much less rewrite it or negotiate it, until he has had time to review it.

Any attorney can quote an hourly rate, but beyond that, the total is unknown at the beginning of the project. (A large law firm may be able to provide a corporate client with a flat rate using cost averaging over many transactions, but a small business using legal counsel on a less than full time basis doesn’t have the wherewithal to support an attorney on a flat fee basis.) As with the doctor or the plumber, an examination is necessary.

Beyond the hourly rate, the client must consider the experience and wisdom of the attorney. Typically, more experienced attorneys have higher rates (within reason) but in most situations, an experienced attorney will be able to complete a project at a lower total cost. Again, using the contract example, an experienced attorney will spot the issues and have language available while the less experienced attorney may need additional time.

There are alternatives you may wish to consider. If you need ongoing services, you may wish to explore “bulk pricing” with your attorney. If the hourly rate is $300, perhaps you could negotiate a full day of services on a periodic basis at $1500 a day. Or, if you would like to have an attorney on-site for a week of work, the rate may drop to $5,000 per week. A half day of mediation services may be $500 per party while a full day is $800 per party. Like any other business person, if an attorney can obtain a commitment of his time, he has less down time and can average his costs over a greater number of hours.

Rates quoted here are examples only. A major downtown law firm may charge $250 per hour for a junior associate while a senior partner may cost $800 or more per hour. Small rural solo practitioners with low overhead may be in the $150 per hour range or may charge flat fees because the work is more routine.

Now no doubt you are doing the math and comparing those fees to your hourly wages. Unfortunately, that comparison does not take into account the expenses of running the business. Remember, revenue minus expenses equals profits. Expenses in running a business include taxes, insurance, licensing fees, office expenses, continuing education, employees, etc. The margins in running a legal practice aren’t as bad as a grocery store or a warehouse club but attorneys don’t just multiply their hourly rate by 40 hours for 52 weeks to determine their take home pay.

If you have a question about fees, ask your attorney. But understand that the answer may be, “It depends.”

It may be legal, but is it right?

Business Contracts Audit

When was the last time you went through all your contracts? If you are in business, you have contracts. Maybe you buy goods and services or sell them; probably both. But do you know the quality of your contracts?

If you tend to do business on a handshake, you have a contract, you just don’t know all the terms. You may know the price, the quantity, and the delivery terms, but do you know the warranty, the limitation on liabilities, the governing law, or the extent of extraneous documents that are considered “contractual”?

Maybe you are one who insists that all contracts be documented but have accepted the other party’s paper with terms and conditions even though your paper also has “fine print.” If a dispute arises and there is a conflict of terms, do you know which provisions will withstand the test?

Well written contacts may be evidenced in a single document signed by all parties or on multiple non-conflicting documents, each signed by a single party. Anything short, and you may find yourself having a third party constructing a contract for you based upon the Uniform Commercial Code.

One method of trying to get a handle on your situation is to audit a sample of contracts. Pull out 10 to 20% of your files from a specified period of time and determine the strength of the contracts. To keep it simple, divide them into four groups:

1) A single document containing all the terms and conditions, and signatures of both parties.

2) Two documents, each signed by a party, where offer and acceptance is obvious and there are no conflicting terms.

3) Two documents where the parties attempted to agree but where conflicting terms exist.

4) No documentation evidencing a contract is contained in the file – no signature, few if any terms, some or no supporting evidence of an attempt to agree to do something.

While reviewing the contract files, take notice of the processes used (or lacking), use of checklists by those touching the files, signature authorities, access to systems controlling and supporting the relationships, the language used by the other party, the formatting of your documents, etc.

Once you understand your exposure, you may take steps to tighten up language, processes, approvals, etc. while also taking steps to strengthen the relationships with the other parties. You may never achieve 100% “air-tight” documents and processes (or even care to), but the less you strive for excellence, the more risk you accept for your business.

Don’t believe that bad things don’t happen to good people (or good companies). As many found out in the recession beginning in 2008, the ripple effect of negative behavior by some has touched many families and businesses who thought they were secure.

It may be legal, but is it right?

You Are Not Alone

The official unemployment rate in the US is now greater than 10% or, if one uses the same method of counting as we did during the great depression, we are now over 20% (officially 17+% but we know that number has been “politically corrected”).

In my practice, I have come in contact with many individuals who are hurting through no fault of their own.

One husband, and father of three, lost his job as an accountant after his company closed one day and emerged the next as a new entity. He had worked for the company for twelve months, the last three without pay due to their financial situation. As if that were not bad enough, six months later he started receiving bills from doctors, hospitals, and labs for services rendered to his family during his employment. Although he had paid the required co-payments, his former employer had failed to pay the premiums for the insurance policies covering the employees. As a result, this man is facing personal bankruptcy –a devastating situation for an accountant looking for a job.

In another situation, a husband and wife had no debt other than their mortgage. Both were laid off from their respective jobs in different industries. Subsequently, after COBRA benefits were exhausted and pre-existing conditions could not be covered by their person health insurance, the husband was hospitalized. In order to pay the medical bills, they sold everything, including their house. Both continue to seek employment.

There are many who have worked continuously for the past 20 or 30 years, have incurred little if any debt, and have faithfully supported their families. Some do not qualify for various programs because they fall outside the qualification time period or have just enough assets left to bump them over the minimum thresholds. Many others will never accept government assistance for moral, political, or other reasons.

If you are employed in a full time position for which you are fully qualified and fairly compensated, consider yourself very fortunate. However, don’t forget about the other 20% of the population. You are not an island. Your actions have both a direct and indirect impact on others. Remember the ripple effect in everything you do throughout your day. Consider taking those calls or responding to those e-mails from your unemployed friends – they are not contagious. Someday, you may find yourself on the outside looking in.

If you are not fully employed for your level of education and experience, continue to actively seek work on a daily basis and trust that this is a storm in your life through which you will emerge. This is not something that you can control, but you still have responsibilities. Seek true wisdom. Persevere. Help others less fortunate than you. (If you believe no one is having more trouble than you, give me a call for a list of people you can visit.) Hang in there.

It may be legal, but is it right?

The Slippery Slope of Conflict

Just in case you thought Collaborative Law (Reconciliation), Negotiation, Mediation, and Arbitration aren't really the ways we should be resolving conflict, take a look at the The Slippery Slope illustration from Peacemaker Ministries. Notice that Litigation is listed as an attack response on the escalation side, right after Assault and just before Murder.

Why are we, in the US, so quick to jump over all the other responses and move directly to Litigation? When you call your legal department or outside counsel, is the first, or only, suggested solution a trip to the courthouse? What about other ways of addressing conflict? Do you suppose there are better ways? Why do you suppose the other ways have survived for so many centuries while litigation is relatively new and has fallen out of favor in many cultures?

Perhaps the above list of questions will help you formulate your own list of questions for your legal staff. Better still, perhaps you could resolve your own conflicts with a bit of coaching or self instruction.

It may be legal, but is it right?

Hiring legal expertise during an economic downturn

Business is good but it’s not that good. So says the business person struggling to keep the doors open, the employees working, and the customers satisfied during the economic downturn. If only I could afford an attorney to help me with my contracts, build my business, and respond to issues that seem to come up on a daily basis.

Perhaps it is time for the business person and the attorney to become creative. How can this problem be solved?

Facing a similar situation recently, I recently proposed three alternatives to the normal attorney-client billing and working relationship.

1) Traditionally, attorneys bill on an hourly basis for services performed. In this suburban town, based upon experience, overhead, type of work, etc., hourly rates range from $275 per hour to just over $400 per hour (large downtown firms are generally in the $600 per hour range for comparable services). Under this arrangement, compensation is fair but the client may be conscious of the “tick of the clock” during every conversation.

2) Contract work has always been an alternative and its use is now growing. Under this scenario, the business may hire the attorney for a particular project as they would any other subcontractor. However, a better arrangement would be to hire the attorney for a fixed number of days each week at a fixed price. For example, having ready access, in your building, to legal expertise two days a week at a reduced hourly rate (for example, eight hours times two days at a rate of 50% to 60% less than the normal hourly rate) would not only provide a consistent, fair return to the attorney on an on-going basis but it would also allow the client to focus on the issues rather than the clock.

3) Finally, there is the alternative of bringing the expertise in-house as a full time employee. Again, the hourly rate drops (perhaps 30% off the contract rate) but the attorney picks up employee benefits rather than just 1099 status. Now the businessman has a “partner” in the business with an interest in success.

But wait a minute, if my business is already struggling, how can I afford to hire a legal expert on a regular basis? That is where more creativity comes into play.

Who says the guy with the legal training can’t also be your Ops or Marketing guy? An attorney with a business background no doubt enjoys making decisions rather than just rendering opinions. Why not make him a part of the senior management team? In one major private company in Dallas, the General Counsel is also the VP of Human Resources. He is a one-man legal department but also manages the entire HR function. An attorney with experience supporting Sales, Marketing and Operations could step into the role of VP of Operations in addition to being the in-house legal counsel. This could even work on a contract basis where the attorney performs “business related duties” in addition to legal work. In a start-up, who says those with legal training can’t run a department or empty the trash cans? Yes, there are some ethical issues to be addressed, but they are not insurmountable.

In this economy, it is time for attorneys and business people to be creative in many areas, including the hiring of legal expertise and the billing for those services.

It may be legal, but is it right?