The budgeting process: collaborating with the client is key

I've discussed before in these columns that effective preparation of an engagement agreement is crucial to avoiding future disagreements with a client over payment.

Preparation of a budget is central to a good engagement agreement. Studies show virtually all "Fortune 500" companies have a written strategic plan (compared to fewer than half of even the most successful smaller companies).

Budgets are the essence of a plan, and any lawyer's corporate clients will welcome (and should pay for) a clear and specific budget before starting a new matter

Budgeting begins by getting as much information as possible from the client about goals and expectations. Information should cover parties, claims, anticipated strategies and desired outcomes. "Winning" may not be one of them. A client may wish to delay the final outcome for political or financial reasons, believing that a continued threat of litigation may bring a negotiated resolution. Understanding the client's objectives is the prerequisite of the budgeting process.

The key here is not just preparing the budget, but involving the client in the preparation. The client should also formally approve the final budget. Without client buy-in, the process is meaningless. Such assent minimizes difficulty in securing payment at the end of a matter.

Budgeting the representation does not translate to a fixed fee. A budget can only be an estimate of what's going to happen. The lawyer should not strive for the highest possible fee; the client should not desire the cheapest lawyer in town.

The budget document should be periodically reviewed, with the client again approving any necessary changes. Clients should also receive ongoing information of how much they have already invested in the litigation, negotiation or transaction.

The budgeting process, including all subsequent communication, must be a collaborative effort. If the parties can't trust one another, if the client and the lawyer behave as adversaries, the representation will likely be unsuccessful and there will likely be difficulty in collecting the fee.

Collaboration means communication. Because lawyer and client will each have unique information at any given time, both must advance the process together. Honesty, openness and candor right from the start will make the entire representation easier and more successful.

Several years ago, an assistant general counsel for a major multinational corporation gave me an excellent example of how the process should work. By creating a budget, she said her company saved close to half-a-million dollars in one litigation. I asked her if they achieved that result by negotiating a reduction in the hourly rates of outside counsel. She replied that it simply required deciding during the budgeting process not to do things the law firm might otherwise have done.

For example, the law firm suggested taking 30 depositions. The general counsel reviewed the proposed individuals and decided that only 19 could provide useful information. The law firm expressed concern over being accused of negligence or malpractice if one of the canceled depositions proved to be a key information source. The client responded by saying, "We are in the business of taking reasonable risks. If we agree on what should be and what need not be done, and something goes wrong later on, that's our responsibility, not yours."

The result was agreement, lower costs and a successful engagement - a win-win situation by anyone's definition.