Hiring Legal Counsel & Initial Litigation Management for Startups

by Hinshaw & Culbertson LLP
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This is a follow up in our series, How to Select New Counsel and Manage Legal Fees, related to litigation management for startup companies to help ease the frustration and confusion of hiring and managing legal counsel for the first time. As you may recall, previously we have discussed typical legal needs for a startup, tips for selecting an attorney, big and small firm size, and crowdfunding and The Jobs Act.

The initial stages of litigation management become important as you close in on hiring counsel. Early litigation management can include negotiating a billing rate appropriate for your legal needs, determining whether your work can be billed at an hourly or project rate, considering deferred billing and regularly reviewing your legal billing for inconsistencies and excessive charges. As we have noted earlier in this series, legal billing is changing drastically due to the challenging economy. Many common billing practices, such as billing clients for routine overhead costs, such as utilities, copy services, library maintenance and rent, are considered excessive. You may want to discuss these types of costs in advance with your lawyer. In addition, you should consider having your legal counsel managed either by a dedicated person internally or by a third party law firm. 

Discussing Rates, Staffing and Overall Fees with Your Attorney

Attorney billing rates generally vary from $200 to $1,000 dollars per hour depending on location, complexity of the work, and the time and resources needed to complete the work. In addition, law firms are known for often charging different rates to different clients. Your funding (bootstrapped, seed or VC) may strongly influence the capabilities and cost of the counsel you hire. Discuss billing rates, deferred billing, alternative billing and retainer fees as applicable during your initial consultation. Utilize billing rate surveys and talk to a few firms. In the present economic climate, many firms may be willing to lower their rates in order to work with your startup.  You may also save money by finding a partner at a small firm with prior big firm experience who is now charging a much lower billing rate. 

Other Ways to Keep Fees Down

Project staffing can limit casework to lower billers such as junior attorneys and paralegals. Keep in mind that a lower rate does not always result in savings. An inexperienced lawyer could take twice as long to work on a project as a lawyer with extensive experience. Other options for savings include reducing the formal reports prepared by your attorney and receiving information in an informal manner (conferences, bullet point lists, etc.). Also, you may be able to reduce the time counsel spends drafting certain documents or charts by collecting basic records or information from counsel and preparing some documents yourself. We will discuss costs (expenses), legal fee billing guidelines and billing entries in future posts.

Where to Research Firms and Rates – Rate Surveys

There are many places you can research law firms and billing rates. The LexisNexis Zimmerman's Research Guide lists many databases and rate surveys. Rate surveys list various common billing rates by geographical region or by practice area. Many news articles also provide excerpts from rate surveys. Below we note a few commonly used rate surveys:

Alternative Fee Arrangements

Most law firms bill by the hour. However, some firms are starting to work with alternative fee arrangements (AFAs) including project billing, fixed fees, and bonus arrangements in an effort to manage projects more efficiently. 

Hourly Rate or Project Rate?

Hiring a lawyer at a project rate may help you avoid surprise legal bills. Some firms may have startup packages for work such as entity formation, basic contracts, financing documents, employee agreements, trademarks, and patents. Make sure to discuss whether there are additional or hidden fees for any related follow up work such as filings or additional document preparation with counsel in a proactive manner.

Is Your Lawyer An Efficient Project Manager?

Many law firms are learning from the business world how to scope out projects and use software tools to manage projects. Be sure to address possible obstacles, and detail staffing and key milestones in your budget and project agreement. Discuss how to regularly communicate the status of a project including using a project tasklist. It is also crucial to talk about “scope creep” and the boundary of the project.

The “10% Discount”

Many law firms will offer a “10% Discount” per invoice for ongoing legal work with a client. Some firms may increase their rates, negating the supposed discount. You should research and discuss the benefit of this type of discount.

Next Post - Deferred Billing

Startups may be interested in deferring their billing for various reasons. Some law firms will work with startups and defer billing until anticipated funding from an investor occurs or a round of financing is complete. We will discuss this further in our next post.

Jeevan Subbiah also contributed to this article.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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