Legal Services Costs: Factors, Fee Models, and Regulation
Solicitors charge for their time and services. The fees charged will usually vary depending on the experience of the solicitor and the complexity of arrangements discussed. The most popular model is the hourly rate, but there are other models which can be used to pay solicitor fees. This article will focus on the factors which affect legal fees, and common alternative fee models, which may be beneficial for start-up companies.
Factors which affect the cost of a solicitor
It is important to choose a law firm that understands your needs and has the skills and resources to meet them. Therefore it is best to have clear expectations of your relationship.
Factors which can affect the cost of a solicitor include:
the timescale set for an assignment; and
the skills and experience of the lawyer.
Since this can be quite pricey, rather than demanding a rate reduction at the offset, it is better to consider alternative pricing models. Firstly, calculate the current and anticipated legal expenditures. Secondly, calculate what deliverables are expected from the lawyers. A good level of organisation is worthwhile, especially if the start-up company breaks the deliverables into project stages, each with a different fee model.
Fee models
Hourly rates
This client is billed based on the time spent on their case which is calculated on an hourly basis. This rate will include everything the solicitor does which is related to the case, including making telephone calls and sending emails.
Hourly rates are clear and easy to use. These are common when the timescale to complete the assignment is uncertain. This is sometimes necessary with small, urgent matters. But, in order to save costs, there must be a certain level of organisation. The disadvantage with the hourly rate is without management, there can be a lot of open-ended costs but your lawyer should provide you with a plan.
Whilst most law firms continue to use the billable hours structure, there has been some demand for flexibility around payment structures.
Fixed fees
A fixed fee is a set amount of payment for a service. When law firms receive a clear, thorough brief and project specification, they are satisfied with payment through the fixed fee model. This is based on their hourly fee, as well as agreements about any potential changes to their work.
To get the most out of this model, ensure the firm has fully understood the start-ups needs.This is a better option from a budgeting perspective, as a company will know how much they will pay for lawyers’ fees from the outset, however, they should be careful to decide the correct fee.
Volume discounts
Fee discounts are given based on the volume of legal work given to the firm. This is usually offered where a large volume of work is assigned. Logically, the higher the volume of work, the higher the discount.
Flat discounts
This is a discount applied across the hourly fee rate. This does carry the risk that the work is given lower priority and may be of lower quality.
Success fees
This is an uplift of a legal fee, chargeable in the event of a successful outcome. Success fees are not recoverable by the other side in litigation. Success fees differ from a conditional fee arrangement, the solicitor and client agree to share the risk of litigation, whereby the solicitor’s fees are only payable in the event of a successful outcome. Solicitors are also able to expressly elect one matter not to charge on, written in the express agreement, which the firm will follow.
Disbursements
A disbursement is a necessary expenditure by the solicitor firm to progress the case. In contentious issues, occasionally a barrister is instructed, requiring barrister fees. The client must first expressly approve the services of a barrister before the solicitor is able to instruct them. Should the barrister fees remain unpaid, the Counsel’s chambers will report that solicitor firm to the SRA.
Regulation of fees
Solicitors have a duty under the code of conduct, established by the Solicitors Regulation Authority (SRA), to inform a client of the likely costs at the time of engagement. Further, you have the right to be updated on any costs as your matter progresses. If you are unsure of the general costs involved in the service before employing the services of a solicitor, you should ask.
In 2018, the SRA also issued transparency rules which meant that price and service information must be clearly displayed for work in areas including: conveyancing (residential), debt recovery (up to £100,000) and licensing applications (business). It is good practice for scope of work and fee structure to be explicitly set out in the letter of engagement sent to the client.
The guideline hourly rates for fee earners differ in London according to grades and which part of London they are based (bands). For instance, a Grade A solicitor, with over 8 years’ experience, in band 1 London should charge £512 per hour. Whereas, a Grade D fee trainee solicitor or paralegal in band 3 London should charge £129 per hour. This is because of the level of expertise the person has, and because band 1 London is notable for heavy commercial and corporate work by central London firms.
If there are any concerns about the legal bill, first raise this issue with the lawyer themselves. It is best to start at the source. If this issue is not resolved, a complaint can be brought to the Legal Ombudsman, who will help resolve complaints about legal services. A complaint can also be brought to the SRA.
Legal aid
Smaller law firms offer discounts for prepayment and payment instalment terms. Otherwise, legal aid can be applied for to help with legal costs, depending on the legal problems faced, as well as an individual’s income and savings.
It is important that a start-up company should look at the different fee models and decide which best fits their needs, regularly consulting the law firm they decide to use.
Author: Neha Tavra -
Author: Neha Tavra -
In partnership with
DISCLAIMER
This article has been written by law students for the sole purpose of providing informative insight. The information in this article is intended for educational purposes only and does not constitute legal advice, nor should the information be used for the purpose of advising clients. You should seek independent legal advice before relying on any of the information provided in this article.
Sources
Brown D, ‘Legal Counsel Are Demanding These Alternative Pricing Structures | LexisNexis Blogs’ (www.lexisnexis.co.uk2023) <https://www.lexisnexis.co.uk/blog/future-of-law/billable-hour-legal-counsel-are-demanding-these-alternative-pricing-structures> accessed 10 May 2023
HM Government, ‘Solicitors’ Guideline Hourly Rates’ (GOV.UK2023) <https://www.gov.uk/guidance/solicitors-guideline-hourly-rates>
SRA, ‘Problems and Complaints’ (www.sra.org.uk18 June 2009) <https://www.sra.org.uk/consumers/problems/> accessed 10 May 2023
——, ‘Transparency Price Service’ (www.sra.org.uk1 November 2018) <https://www.sra.org.uk/solicitors/resources/transparency/transparency-price-service/> accessed 10 May 2023
The Centre for Legal Leadership, ‘Legal Services Fee Models’ (www.legalleadership.co.uk2023) <https://www.legalleadership.co.uk/knowledge/delivering-services/finance-and-accounting/legal-services-fee-models/> accessed 10 May 2023
