So you have a startup and you just signed on with a lawyer that offers deferred payment for a certain amount of legal services until you raise a round. You think this is great, and you happily sign their legal service agreement specifying how they’ll charge you. You don’t have to worry about paying the bill until you’re a funded startup so you don’t pay much attention to it.
A little bit of time passes and you haven’t used your lawyers too much, but it seems they’ve already hit their free services cap. How did that happen so fast? Now you’re having mini heart attacks each time you open their bills.
I recently caught up with a lawyer friend who provides a service of reviewing legal bills. He totally opened my eyes and I felt that this information was vital to be shared with the rest of the startup community.
Firstly, let’s go back to that services agreement you signed. If you think about it, if your lawyer isn’t giving you a services contract that benefits them, they’re probably not very good lawyers. It likely has all sorts of clauses in there for how they can take their pound of flesh. But that doesn’t mean you can’t push back and negotiate these terms. Just make sure they don’t charge you for negotiating the contract!
Here are some things you should watch out for:
Lawyers have hourly rates. But they usually bill you in six minute increments. So let’s say a lawyer’s fee is $600 per hour (which is $10 per minute). He speaks to you on the phone for 2 minutes. That just cost you $60. Not $20. That’s a $40 rounding charge. Wow. Another way to think of it is a 200% markup.
You can push back on this. If the firm says they technically can’t bill in lower increments, then politely ask for them to round down rather than round up or request a flat fee discount (such as 10%) for rounded time.
- Hourly Rates are variable.
Can you imagine saying to your customers that your rates are variable and it depends on who does the work, and then not publishing that schedule of fees? No? Well, lawyers do this all the time.
Ask them to explicitly state the rates of the lawyers who will likely be working on your account and push for their floor rates. You can ask for this: you’re a startup.
- Hourly Rates are subject to increase.
There’s likely a clause that essentially says they can increase rates at their own discretion and the new rate will show up in the bill after it has been incurred. Again, imagine telling your customers that you’re going to increase the rates and bill them without giving them notice!
Make sure they seek approval for these increases in advance.
- Charging for law students.
Make sure that you don’t get billed $200 per hour for a law student. It’s not your responsibility to pay for their education. You might be thinking, “Of course, no law firm would charge me for a student!” Think again.
- Third Party Expenses.
There’s a clause in your agreement that talks about incurring expenses in connection with your representation and they can bill you for these up to a certain amount without prior approval.
Tell them you require them to get your approval before incurring such expenses. And list out the expenses you will not pay for. It’s likely they will have a clause detailing the types of third party expenses they can incur on your behalf. Push back on this list and exclude items like mileage, travel, food, phone charges, copying and research expenses such as Lexis-Nexis, storage and data management services.
- Travel Time.
Let’s say they need to fly across the country for a meeting. They will charge you for their travel time. They may be doing work for someone else while they travel, but they’ll charge you as well. And they may combine their trip with a meeting they need to take for another client, so they could charge them for travel time as well.
Push back on this and say you won’t pay for travel time.
- Resource double-up.
You’ll have a conference call scheduled and they’ll invite additional attorneys to sit in. And they’ll charge you for it, even though they may not say a word during the meeting.
Add a clause to your contract that says, “We agree not to bill you for any more than one attorney on any conference call with you.“
- Vague line items.
If you receive a bill that just says “Legal Services”, then it’s going to be pretty hard to dispute. Make sure you ask for detailed descriptions and that they don’t charge you for any time they spend detailing their time.
- Value Billing.
Let’s say your lawyer wrote a legal brief for another client and it took him 8 hours. If you have a similar case, he may be able to simply tweak the brief he wrote in the first case and use it in your case. Let’s say he spent 1 hour tweaking the old brief to fit into your case. He should only bill 1 hour for that, but some attorneys will bill the full 8 hours for the second brief as if they had created it from scratch.
- Routine Services.
There are a bunch of legal services you just don’t need a top shelf Silicon Valley lawyer for. If you use your lawyer, you’ll get charged way more than if you used a regular lawyer or even an online legal service. For example, I recently used MyUSACorporation.com to change my company’s name. It was simple and painless and a couple hundred dollars.
I hope this list was helpful to you, and if it was please share it so others can benefit from this wisdom. It’s time we disrupted Legal Bills!