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Validatum kicks off its 2021 blog series with a fresh new format, but an all too familiar problem…
What follows will for many of you, be the tortured reality of day-to-day legal practice. In the course of strategising a solution to this real-world problem with a partner recently, it occurred to me that it might be a useful way to kick off our first thought piece of 2021. At issue was a carefully and thoughtfully scoped estimate of ~£75,000 but the final cost is likely to be ~£100,000 – possibly a little more.
Summarising, and appropriately redacted, it went something like this…
Lawyer: As you know we are a few weeks away from completing the job and I wanted to give you a detailed update of where we are on costs. As you can see, we have incurred considerably more on the [two work streams that frequently blow out]. Here is a detailed breakdown and explanation. Can you confirm that you are happy for us to continue on the understanding that we will invoice you for that extra work?
Client (CFO): When we discuss a fixed price, I do not expect there to be necessary things that are excluded. Your fixed fee should include everything needed to complete the transaction and you should have included [certain work streams] within your scope. If our understanding missed a minor point in your fee estimate, then I am sorry; but I think this should be the position.
Lawyer: We didn’t agree to cover all eventualities. I gave you a detailed scope and as I have explained we needed to do more work than was anticipated and you required us to do so in order to get the job done. As I am sure you appreciate, the point of providing a scope of work (whether that is a lawyer, an accountant or a builder) is so that the client is clear what is included within the fee. No service provider could ever provide a competitive fixed fee which would cover all eventualities.
Client (CFO): It seems we have a difference of opinion, as the transaction is very busy for all of us at the moment, I suggest we discuss this once we have completed.
Oh, the humanity! How many times have you had that conversation in your career?
The nuances of situations like this require a high degree of emotional intelligence, commercial pragmatism and negotiation skills and therefore do not lend themselves to a one-size-fits-all formulaic approach.
Nonetheless, there are some key principles that apply and perhaps the most important thing to note is that they are preventative rather than reactive. How do we avoid getting into this sort of conversation in the first place?
First, as an exercise in client relations, it is appalling. None of us like bad news but the only thing worse is bad news that is not delivered in a timely manner.
Second, from a pure price negotiation point of view, clients will often suggest that the matter is deferred to the end (as precisely happened in the case above) for the simple reason that once the job was completed, the lawyer has lost all negotiation power. We have written about this in more detail previously in ‘We’ll Have a Chat at the End – a $20 Billion Black Hole’.
It would be facile to suggest that by following a few simple pointers, all such pricing problems could be avoided, but experience has shown that implementing a few simple disciplines can significantly mitigate the problems and minimise scope creep write-offs.
This article was first published on the Validatum website on 21 January 2021 and can be read here.