Have you noticed a trend lately that more and more clients are asking for a quote or cost estimate? Whether this is a symptom of the COVID pandemic or an enlightenment of attorneys general client base as to the provisions of the Legal Practice Act remains to be seen.

So what do you do when a client asks for a cost estimate? Well, cost estimates are not necessarily a brand new concept as some clients new to engaging legal practitioners in the past have asked for a cost estimate. Most often these past cost estimates were provided in an email or more formally in a letter to clients, and that was really the end of that. Where the client accepted the estimate and engaged the services of the attorney, it would be up to the client to call out when the estimate had been reached, with the attorney, more often than not, being blissfully oblivious to reaching the estimated amount.

Now that’s not an indictment on attorneys in any way. Some attorneys have elephant memories and would know if it was a one-off bill that the estimate was reached or exceeded. But where a matter drags on for some time, nobody could remember how much the total invoiced amounts would add up to, and so there is the potential to exceed the original cost estimate.

And this is where the client/attorney relationship can become difficult.

An Estimate is an Estimate

There are two issues in the client relationship that need to be addressed. The first is that an estimate is just that, an estimate. Let’s take an estimate for a set of agreements – what could go wrong? Below are some things that can severely impact a given estimate.

· Client does not provide all the facts pertaining to such things as licenses, ownership, lease agreements, etc.;

· Client has not understood the commercial terms they think they agreed with another party;

· The other party may not have the authority or means to conclude the agreements.

In this case, managing the client relationship in respect of the estimate will mean making the client aware that additional work required to establish and support the facts, commercial terms and contracting parties, all of which may not have been factored into the original estimate as they might not have been anticipated. Now, while this may be done in the ordinary course of communicating with the client (making them aware of the extra work required), very often the client does not connect the extra work to perhaps an adjustment to the original estimate.

The second issue is where the attorney diligently beavers away producing their best work without realizing that they have exceeded the estimate, only for the client to tell them and then it’s generally too late to justify the extra cost and the attorney will invariably write off the excess or lose the client.

Managing Estimates

I think, notwithstanding the provisions of the Legal Practice Act, estimates are a reality and are here to stay and the sooner that attorneys manage estimates given to clients the better for their client/attorney relationships.

Our practice management solutions provide for multiple phases on a matter and an estimate for each phase.

So, in the example above, say the matter was to draft agreements for the re-structuring of a group of mining companies.

• The first phase of the matter is understanding the current structure of the companies and what and how the re-structure is that is to take place so we can call that the Commercial Terms phase;

• The second phase of the matter is the drafting of the agreements, which we can call the Drafting phase; and

• The third and final phase will be the Execution phase.

Even if estimates are given for each phase or as a total for the matter, it was never anticipated that when the drafts were sent out for comment in the second phase that the process would be circling back to the first phase because not all the commercial facts were provided, fully disclosed or were accurate.

Using a phased approach with accounting on the firm’s invoice for each phase, it is much easier to manage the relationship with the client in respect of the costs incurred, especially when the system automatically warns when estimate thresholds are approaching.