Today’s Take: Budgets Are Better Tools Than Estimates
When a client or prospective client asks me to estimate the cost of the litigation it proposes to bring or defend, I cringe. Why? Because if my estimate turns out to be too low, the client is likely to be unhappy because his/her expectations of cost were violated, perhaps significantly—and I may not get paid for the excess. Yet if I estimate conservatively (high) to avoid that risk, I may lose the work to other lawyers who are willing to quote cheap and take the non-payment risk.
To be sure, clear communications with the client or prospective client can be of great help. The client needs to understand that estimates can only be just that—tentative evaluations or educated guesses—because actions taken by the other side can cause the costs to escalate dramatically. So when I’m asked for an estimate, I explain this and then give the client or prospective client two estimates: what I think it should cost, and what I think it could cost depending on what the other side does. And then, as the litigation unfolds, I make it a point of keeping the client informed as to how what is going on affects the estimates I gave them.
What I’ve found, however, is that it’s not necessarily the mere fact that the estimate is being exceeded that is upsetting to the client; it’s that they planned for one expense but got another in a particular month or quarter. Many businesses (and individuals, for that matter) base their business plans and decisions on cash flow budgets and projections; when they have a significant variation—a $50,000 legal bill for the month instead of the anticipated $20,000—it can have an impact on the functioning of the business if the bill is paid, or a concerned lawyer if it is not. Neither makes for a great attorney-client relationship.
I have found that many clients are willing to address this through a budgeting system. Say, for example, my upper estimate for the matter, through trial, is $300,000, and that based on the court’s congestion, the likely time to trial is 18 months. Under these circumstances, I would ask the client to pay the firm $17,000 (if exactness is required, $16,667) on the first day of each month. Some months, the payment will exceed the fees and costs incurred; other months, the fees and costs will be greater than the payment. But the certainty of that approach is frequently welcomed by the client, who can then plan accordingly. I do, however, usually set a date to revisit whether the number is appropriate and adjust the budget accordingly, just in case; fortunately, I’ve never need to make the adjustment.
This approach has benefits for the law firm, too. Planning is one (and particularly important for smaller firms or solo lawyers), but the principal benefit is that if the client fails to make the budgeted payments on time, the lawyer can get out sooner than he would if the client had a sporadic payment record and began falling farther and farther behind. Frequently, this earlier recognition allows the lawyer to make his motion to withdraw far enough in advance of trial to avoid being stuck in the matter and being stiffed for huge dollars.
So whether you’re a client or a lawyer, here’s a tool that can be of practical benefit to you in litigating what may be an expensive and protracted case. Just giving or getting estimates won’t get you to where you want to go.
Allan Cooper, Head of ECJ’s Litigation Department
Today’s Taste: Since we’ve been talking about budgets, let’s recommend a budget-friendly wine. If you haven’t noticed, I’m not one of the firm’s wine mavens, so this from my partner Gary Michel: “Speaking of budgets, the 2010 Michel Gassier Cotes du Rhone Villages Visan Cercius comes in under budget at less than $15. Wine reviewer Robert Parker commenced his review of this wine with the word “Wow!” I would heartily agree and would only add “Oh, Wow!” This vibrant and juicy French Rhone is a blend of old vine Grenache and Syrah and is simply delicious. Blackberries and cherry immediately come to mind. Run, don’t walk, to find this wine. It will be worth your effort.” Thanks, Gary!
On Writs and Wine is the blog of ECJ’s Litigation Department, featuring our takes on a variety of litigation-related issues, plus a wine recommendation for your palate’s delight. Your feedback—on both the takes and the wine—is much appreciated. Enjoy!