What is a legal services agreement?
A legal services agreement is an arrangement between a client and an attorney that sets out the terms of the legal counsel or legal service to be provided. It can cover a specific matter for which the lawyer has been hired, or it can serve as a broader representation covering multiple matters for which the attorney may act as counsel. The fundamental purpose of this type of agreement is to provide a clear understanding of the scope of the work to be performed by the attorney in relation to diligent representation under the law on behalf of the client, while also outlining the client’s obligations, including payment .
The legal services agreement should establish the following aspects:
• scope of legal services to be performed
• general approach to representation
• compensation
• communication
• billing and fee payment terms
• retainer amount
• term of representation
• termination
• waiver of conflict of interest
Although it is not legally required by law, having a legal services agreement in writing can help protect the client and attorney in the event of future disputes over the lawyer’s performance or the costs of legal services.
Essential features of a legal services agreement
When engaging a lawyer, a client and a lawyer agree in a contract between them on the scope of the work to be done by the lawyer; the amount to be charged; and the applicable jurisdiction so as to provide for a resolution of any dispute in a way that is convenient for both the client and the lawyer. The agreement is usually in writing but in some cases, an agreement between the lawyer and a client may not be in writing. This happens in small matters where the work is of an urgent nature and cannot await execution of a written agreement. The effect of an agreement being in writing is that it forms part of the evidence available in the case if there is a dispute. The agreement will usually set out the scope of the services to be rendered. It may exclude work that might be required later. For example, it may restrict its scope to advice and an application in court and exclude advocacy or appeals. A clause acknowledging the scope rather than giving details will avoid a circumstance where, after the conclusion of the matter, the lawyer is blamed for something not achieved and this being intellectual in nature it is difficult to prove what was in the parties’ minds. An agreement also normally sets out the fees due and the rates applicable. There are various ways of charging fees. These various forms include contingency fees, hourly billing, fixed fees and fixed fees based on hourly or daily rates. A client should choose what is most appropriate for them. Generally, a client bills for the legal work in stages such as the work being done before trial and the work done during the trial. A stage might be completed at a time when it might be difficult or inconvenient to settle an account, if legal work is frequently rendered, as it is in many family law matters. Such a situation may arise where a client file becomes cluttered with invoices. In these circumstances, it is better to send an interim account at a certain stage and to have the final account be for the completed stage. A clause in an agreement or clause to be included in an invoice, indicating that the account must be paid within 30 days of the date of the account and that the interest at the maximum rate permitted in terms of the Act, will be charged on any outstanding amount after 30 days, makes it clear to the client that the lawyer will insist on the account being paid and when charged interest on that amount will be levied. An account for interim costs should be described as an interim costs account and the requirements regarding the requirements when such an account is issued should be complied with in terms of legislation. The agreement should include a place where disputes will be adjudicated. This is particularly important in family law cases where parties may live in different countries. Litigation in some countries, such as the United States of America, can be extremely costly in terms of lawyer’s time whilst litigation is also generally very inexpensive in other countries. When such an agreement is drawn, clauses should be included indicating that the agreement binds the heirs, executors and liquidators and the respective successors in title of all or any of the parties.
Legal services agreement benefits
A Legal Services Agreement helps both the client and the attorney. The client is protected from problems and uncertainty. As soon as the client decides to hire a lawyer, it’s usually beneficial to have a written contract. This is true for many reasons.
Most importantly, lawyers have to comply with confidentiality rules or they risk losing their license. Confidentiality means that they don’t talk about your case to anybody if they don’t have your permission. Sometimes, the client wants the lawyer to let somebody know something, but most of the time, lawyers simply have to keep everything they know to themselves. There is nothing more confidential than the fact that you are a client in an attorney’s office. Therefore, it is important that you keep your signed copy of the Agreement in a protected place and not show it to the world. Remember that the names and complete details of your concerns are on that document.
Clients are often unsure about costs and billing practices. It is important that you know how and when you are going to be billed and what services you will be getting. Getting this information upfront is beneficial.
Typical Legal Services agreement terms
Typically, legal services agreements contain the following sections:
Parties: This clause provides the names and principal addresses of the parties to the agreement. It also usually establishes that the party hiring the lawyer is a "client," and can’t be denied the return of property, documents, or funds in the lawyer’s possession. Usually, the "lawyer" is defined as the law firm. If there are other members of, or entities affiliated with, the law firm that will provide services, they might also be identified here.
Scope of Engagement: The scope of engagement defines the type of work that will be performed under the agreement. Sometimes, it’s possible to establish the exact matters that will be handled, but some lawyers prefer this to be more of a general clause that grants them discretion to add or delete matters that fall within the scope of work, by mutual consent. Also, the scope of engagement clause sometimes includes language that cautions that unexpected problems might arise and could require lots of time and money to solve; that it makes the client responsible for any additional expenses for those problems; that there are different fees and estimates that can apply, and the client will get the benefit of the least amount; and that the client understands that estimates are not caps or ceilings on costs. It might also clarify whose responsibility it is to search for other insurance or sources of funds — for example, if there’s an accident or injury, the lawyer might suggest that the client seek insurance in addition to the insurance the client has.
Fee Structure: The fee structure clause is the section that establishes whether the agreement will be billed hourly, and if so, at what rate, or whether the representation will be handled on a flat fee basis. The clause might include some of the same language under the scope of engagement clause about problems that might arise, and that estimated costs/expenses are not set amounts, but the least of those amounts will be charged. If the client doesn’t want any cap on expenses, that can be clarified in the fee structure clause.
Client Responsibilities and Costs: This clause mandates that the client help with the representation by providing records, information, and documents the lawyer needs to do the legal work. It can also clarify that the client will help draft and deliver documents, will tell other people to deal directly with the lawyer regarding the representation, will keep the lawyer updated on any changes to important contact information, and will meet with the lawyer at mutually agreeable times. Other costs, such as filing fees, expert witness fees, travel expenses, and other related expenses, can also be covered by this clause.
Termination: A termination clause explains how the agreement can be canceled, and what happens both to the work that has already been done, and to the remaining balance on the lawyer’s bill. It also generally states that the client still has to pay the bills that were incurred while the agreement was in effect. If there are any situations where the client would not have to continue to pay the bill, for example if the lawyer does something illegal or unethical, they can be outlined in the clause.
How to write a legal services agreement
To draft an effective legal services agreement, follow this process: (1) List all relevant information about the client. A legal services agreement should typically contain the following client information: (2) List all relevant information about the attorney. A legal services agreement should typically contain the following attorney information: (3) List the services being provided by the attorney. These services should be listed in bullet-point form. If the scope of the services is particularly extensive, such as in an engagement involving a multi-year, multi-million dollar transaction, the services may be listed in matrix form. A legal services agreement should typically contain the following service information: (4) List the method of compensation. The most common types of attorney compensation are (a) time-based compensation (typically hourly), (b) contingent compensation, (c) flat fee compensation. It is often a good idea to require the client to deposit an "evergreen" retainer into the attorney’s trust account for the duration of the representation. A legal services agreement should typically contain the following compensation information: (5) Identify whether disbursement charges will be made, and if so, how much. If disbursement charges are reasonable, they can be charged to a client. However, the amount of such charges should be accurately disclosed. (6) Identify whether the client will be billed for paralegal and/or junior attorneys. (7) Identify whether interest will be charged for unpaid fees. (It’s also a good idea to disclose the applicable interest rate and begin the interest calculations on a specific day of the month, such as on the 15th of each month). (8) Identify whether the client can be billed for both legal and non-legal services such as accounting or market analysis. If the client is billed for both legal and non-legal services, the legal services agreement should stipulate which "non-legal" costs are separately billable and require the client to pay separately for those costs . (9) Identify whether the attorney can afford to represent the client when the client cannot pay. If the attorney intends to undertake a representation where he or she can afford to represent the client but not be paid until sometime in the future, this should be explicitly stated in the legal services agreement. The attorney should also require the client to sign a waiver of any conflict of interest that might arise from the attorney advocating on the client’s behalf knowing that he or she might not be paid in full if the client does not prevail. (10) Identify any potential conflicts of interest. If the attorney believes he or she can represent the client without facing a conflict of interest, the attorney should nevertheless clearly disclose any potential conflicts of interest in the legal services agreement. (11) Identify how the attorney may withdraw from the representation. The attorney generally has the unconditional right to withdraw if the client does not pay his or her legal bills. The client can terminate the legal services agreement without cause. In addition to these two quasi-automatic termination rights, the attorney may wish to specify that the client can also terminate the agreement for other reasons as well, such as the perception that the attorney is not fulfilling the duties set forth in the legal services agreement. The attorney may wish to specify various additional grounds for withdrawal based on fulfilling the principles set forth in the ABA Model Rules of Professional Responsibility. (12) Identify whether the attorney may refer client matters to other lawyers. Legal malpractice typically occurs when an attorney fails to properly handle a case because he or she allows another attorney to do part of the work and the other attorney fails to fulfill some duty owed to the client. A legal services agreement should therefore typically contain explicit language providing that the attorney may hire other, more qualified attorneys to handle parts of the client representation.
Assessing a legal services agreement sample
When evaluating a legal services agreement sample, it’s essential to review it against the specific needs of your client. The language may be too broad or narrowly defined. The parties may not be clearly identified, and the assignment of issues may not be suitable.
The best rules of thumb are to (1) make sure you both understand what you’re agreeing to, (2) be clear on your solution, how long will it take, any foreseeable problems, and at what cost, (3) express limitations on the scope of your services, and (4) set expectations for communication updates with the client.
Your legal services agreement sample should contain a termination clause. Be on alert for agreements that don’t contain any provisions involving termination, as a sign that the agreement might be missing important and necessary information.
Avoiding the mistakes often made in legal services agreements
Creating or entering into a legal services agreement can be a straightforward process if essential factors are explicitly addressed within the agreement. Failure to do so may expose the client to unwarranted risks. To mitigate those risks, it is essential to identify any ambiguities or omissions in the general and specific terms and conditions contemplated between the client and the legal service provider. For instance, understand the scope of the work to determine whether the legal service provider’s framework for legal work is sufficient to meet the client’s expectations. Also, review the cost structure to ensure that the pricing model aligns with the client’s budgetary constraints and consider whether the fees stated are inclusive of all embedded costs. A clear understanding of the scope of work contemplated between the client and the legal service providers is critical to avoid the risk of having the client pay for unanticipated additional services. Therefore, keep in mind factors such as the areas of law applicable to a particular deal or transaction, the specific nature of the client’s business, the complexity of a particular deal or transaction, and the relevant jurisdiction of a particular deal or transaction. Additionally, a time-based fee structure could lead to unanticipated fees if the scope of services is not clearly defined. The same reasoning applies to contingent fee arrangements and the definition of the triggering events for the payment of those fees. If the agreement is premised on the successful completion of all or a portion of a deal or transaction, consider the process by which the success of the deal will impact the fee and whether the parties have sufficiently defined the success measures. In this regard, if a legal services agreement is premised on the completion of a legal proceeding like a litigation, a legal services agreement can be particularly useful for memorializing the scope of work to be performed. Also, consider defining how or whether the legal service provider will have the exclusive right to represent the client in that particular matter and also if and how those rights can be transferred or assigned to another service provider. If the legal services agreement is meant to apply to multiple transactions, consider detailing the scope of work to be performed with respect to a particular deal. For example, provide that the services covered under the legal services agreement are limited to those to be provided with respect to a particular deal. Before entering into a legal services agreement, consider the general and specific circumstances of the relationship between the client and the legal service provider. For example, if the client has an existing relationship with an area of specialization (i.e., patent, tax, real estate, litigation), consider whether the client can leverage that relationship, including optimizing the cost structure for fees to be paid. Also, does the legal service provider practice in a field or specialization relevant to the core business of the client? If not, consider whether the relationship with the legal service provider is adequate to address the client’s needs. Finally, if the legal services agreement metrics require periodic reporting or data sharing, consider whether the client has the capacity and infrastructure to retain and share the relevant data or reports.
Legal Services Agreement FAQ
What is a legal services agreement?
A legal services agreement is a written understanding between a lawyer and a client laying out what legal services the lawyer will provide to a client, what a client will pay for those services, and other details of the lawyer-client agreement. Legal services agreements are helpful to avoid misunderstanding between lawyers and clients.
Are legal services agreements required?
There is no law requiring a legal services agreement in Colorado, although every law firm should use them. Some lawyers believe that legal services agreements are only appropriate for "big" clients. However, using a legal services agreement with every client (even if you don’t charge hourly) makes it much easier to bill for services, since the legal services agreement serves as a road map.
What are the benefits of using a legal services agreement?
The two most important benefits of using a legal services agreement are to prevent misunderstandings and to provide proof of what both lawyer and client agreed to. The legal services agreement does not need to be long or complicated in order to accomplish these benefits.
Having a legal services agreement is also an ethical must. The Colorado Rules of Professional Conduct (colloquially known as the "Rules") require lawyers to promptly communicate the scope of representation and the basis or rate of the fees and expenses, including whether expenses will be calculated using their actual value or some alternative basis (Rule 1 . 5(b)). (Verification of the fee must also be given on request, see Rule 1.5(e)). Failure to communicate the terms of the engagement may subject the lawyer to discipline. This requirement, of course, is satisfied by using a written legal services agreement to transmit this information to the client.
How are legal services agreements used?
The simplest form of a legal services agreement is a retainer agreement which sets out the scope of the retainer (meaning the matters the lawyer has been retained to handle), the amount of the retainer from which payments will be made as invoices are submitted, and the lawyer’s hourly fee. Your retainer agreement should set out the scope of the retainer and the lawyer’s duties in at least these four areas:
More complicated legal services agreements clarify the scope of the representation even more, for example, by referring to the documents which govern the relationship, by adding provisions allowing the lawyer to withdraw (triggered, e.g., by a client’s failure to pay the retainer, if any), and by including standard reservation of rights and warning language.
Legal services agreements may also include other provisions, such as cost sharing or split fee provisions, referral fee provisions, settlement approvals for minor clients, arbitration provisions, control of litigation decisions, and repetitive or continuing representation provisions.