Legal Commentary

September/October 2009

Legal Fees How Attorneys Can Help Cut Costs

What every CFO needs to know about managing today’s legal expenses

Jeff Blease Attorney

Jeff Blease is a partner in the international law firm of Foley & Lardner LLP, chair of the construction practice and a member of the alternative fee working group. He is licensed to practice law in Massachusetts, Minnesota and California and has been a member of the AGC San Diego Chapter for his entire 22-year career. E-mail: JBlease@foley.com

Times are tough, bidding is ferociously competitive and credit is tight. Lenders and bonding companies are pressuring con-tractors to produce financial results. General counsel employed by large contractors are faced with budget cuts and smaller staff.

And then it happens: a process server shows up at the door. A lawsuit has been filed against the company. This one is not covered by insurance, and the owners wonder, “What will it cost?” How can the CFO control what has been an uncontrollable expense in the past?

Like no-money-down mortgages, the days of uncontrollable legal budgets should be long gone. Lawyers in tune with the times and those who listen to contractor needs must become part of the solution, not the problem.

Contractors have a right to know what legal costs they should anticipate and how they can “value-engineer” them on the front end. That can be done with a detailed litigation budget, alternative fee arrangement or early mediation.

An effective legal budget for a lawsuit comes from a collaboration between the contractor and the lawyer at the beginning of the case. To create an accurate budget, they must develop the assumptions for estimating billable hours.

How many witnesses will there be? How many documents? What are the sizes of the e-mail accounts of project managers, superintendents and field personnel? How did the project go? Will there be especially difficult legal issues or uncooperative witnesses?

An effective first budget meeting should start with a comprehensive checklist of questions, because the answers will be used to estimate the time needed for the tasks. Like competitive bidding for construction, more information greatly reduces the risk of pricing inaccuracies.

The lawyer will then input the data into a template that lists the personnel in the case, tasks to be completed, rates for each member of the team and the expected expenses. The draft budget is a living document that should be discussed with the contractor, who may have ideas for eliminating or sharing tasks.

As the case progresses, the budget should be updated. A solid budget saves money and brings predictability to the process.

Many routine tasks and some litigation matters are well suited for alternative fee arrangements in place of standard hourly fees. Flat fees for contract reviews, bid protests and even monthly counseling on routine matters are great ways to bring predictability to expenses.

Flat fees for different phases of a litigation matter are another possibility. Some firms will offer a reduced hourly rate or a flat monthly rate combined with a percentage success fee on litigation, which helps monthly cash flow. Contingent fees are also possible, though they may not be suited for many construction cases.

Contractors cannot be expected to know alternative arrangements, so lawyers should discuss those with clients. After all, lawyers have a vested interest in keeping clients in business and should be willing to find common ground on an alternative fee when it is appropriate.

A traditional lawsuit is simply inefficient, especially in construction cases. After the suit is filed and answered, the two sides quiz each other through a series of different formats. They seek to discover what the other side will argue to evaluate the case for settlement and trial.

On complex projects with thousands of documents and dozens of witnesses, the discovery process is lengthy and expensive. Early mediation often cuts down the amount of formal discovery and can even resolve a case before significant attorney fees are incurred.

Mediation is an informal way to exchange information and documents that can streamline the case and narrow the disputes. A good mediation clause will require the parties to mediate before a lawsuit is filed and will prevent the winning party in the lawsuit from collecting attorney fees if the case is not mediated first.

That provision is an incentive to mediate in good faith. Pick a good mediator. Find out how many construction cases the mediator has handled. The mediator will often ask if the parties know how much it will cost to take the case through trial because many clients have not discussed that with their lawyer.

Following the steps above will provide that answer and help in evaluating the true settlement value of a case.