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You have no doubt heard the phrase ‘we charge in 6 minute increments’! What many law firms do is charge an hourly rate for legal work performed and that is broken down into 6 minute blocks. It’s commonly known as a fee for service arrangement. So how does this work? Basically, a lawyer will have on their computer a time sheet. On that time sheet they record every tiny little thing they do on a client’s file.

Imagine this, you have a lawyer preparing your Will. There’s nothing fancy in your Will, you are a single person with assets such as a house, shares, super and money in the bank and you are leaving everything to your sibling. Your lawyer is an experienced Wills and Estates lawyer and is a Senior Associate at a reputable firm. His/her rate is $550.00 per hour (incl gst) regardless of the type of work he/she does. Below is an example of how you might be charged for the preparation of your Will:

  • Meeting with you to take your instructions and provide you with advice in relation to your Will generally, your superannuation and any tax issues for your estate – 40 minutes. 6 does not divide into 40. Because you are charged in 6 minute blocks, the time is rounded up, so you are charged for 42 minutes = $385.00.
  • The lawyer prepares your Will – 1 hour. That’s easy, it’s $550.00.
  • The lawyer sends you an email attaching the Will for you to review – 2 minutes. Again, you are charged for the 6 minute block = $55.00.
  • You respond to your lawyer by email advising the Will is order – 1 minute for the lawyer to read it. You are charged for the 6 minute block = $55.00.
  • The lawyer calls you to set up a time for you to go in and sign your Will – 5 minutes. You are charged for the 6 minute block = $55.00.
  • You attend your lawyer’s office to sign your Will – 30 minutes = $275.00.

The total cost for this Will is $1,375.00. If you were lucky enough to engage a firm that also charges for every phone call made and every piece of paper printed in relation to your matter, you will no doubt be delighted when you receive your invoice!

What might the cost be if you engaged a lawyer that charges a fixed fee for this Will? Good question! From my experience and discussions with other practitioners in the area, a fixed fee rate might be somewhere between $300.00-$550.00 for a standard single person Will.

Now don’t get me wrong, fee for service arrangements do have their place. Some matters you cannot anticipate the amount work you might need to undertake. In those circumstances, the fairest arrangement for everyone is to time record for the work done and bill accordingly. But there must be flexibility and fairness in the approach to recording time for work done.

Fixed fees – what are the advantages for clients?

I see the following advantages:

  • Gives clients up-front certainty regarding their legal costs.
  • Allows clients to fully understand their financial position at the end of a matter.
  • The focus is the value of the work rather than the time spent.
  • Costs are tailored for the type of matter so client’s are not paying high hourly rates for less complex matters.
  • Removes the financial tension in the lawyer/client relationship that comes with monthly time billing.

Fixed fees – what are the advantages for law firms?

Common advantages seem to be:

  • Reduce complaints by clients that the lawyer did not properly disclose their costs and the amount is a surprise.
  • Requires efficient practices to be in place.
  • Employees are focusing on the work they are doing on each matter rather than what they are putting in a time sheet.

There can be some disadvantages from a practice management point of view, for example, ineffective costing which leads to reduced profitability. But this risk can easily be reduced with the right knowledge, scoping and efficient processes in place.