Engagement letters are an essential part of a professional services practice; they formally define and establish the terms of your legal relationship with your clients. Too often, though, an engagement letter is weakened by a lack of clarity. Here, I will outline a few aspects of an engagement letter to keep in mind to strengthen your future engagement letters.
Tip 1: Establish the Terms in Writing
By establishing the terms of an engagement agreement in writing, you and your client can ensure that you’re in mutual agreement. This explicit documented agreement can also help in risk management in case of a dispute between attorney and client. It is essential to note, however, that a written agreement is virtually meaningless, and potentially harmful, without a client’s signature. The rule of thumb here is to be explicit in your writing and always secure your clients’ signatures.
Tip 2: Identify the Client Clearly
Uncertainty in who you represent can undoubtedly lead to conflict. To avoid this uncertainty, you can use your engagement letter to clearly state who your client is and who your client is not.
This can particularly be an issue when you’re representing a corporate entity with multiple owners, shareholders, and officers. In the case that your client is the corporate entity rather than the individual subgroups of owners, shareholders, and/or, officers, it is best to clearly state this. If, you’re only representing one party, clearly state who is and who is not represented by calling attention to the related entities and individuals
Similarly, in cases where there are multiple subsidiary companies, the lawyer should identify which entities are and are not to be represented by them. Avoiding broad language that encompasses all companies can certainly help avoid conflict.
Tip 3: Consider Conflict
Being open and honest when it comes to conflict is the best plan of action. If you find a potential conflict of interest, it is best disclosed in writing. If the client chooses to proceed, then explicate the conflict in your engagement letter along with the potential disadvantages of continuing to work together. You should then seek out a signed conflict waiver (but beware: not all conflicts can be waived).
In your engagement letter, explain what will happen should a conflict arise. With multiple clients, explain the course of action should there be a conflict between the jointly-represented clients, and also establish the terms of information disclosure between the jointly represented clients.
Tip 4: State the Scope Clearly
Too often, clients think they’re getting more than what they pay for, and this results in conflict. To prevent this from happening, you should clearly state, in writing, what you have been hired to do. The more specific you can be in your engagement letter with respect to what you will and will not be responsible for, the better. Broad statements, open-ended language, and vagueness ought to be avoided. And should you be handling work outside of the scope of your agreement later on, you should issue an amendment to be signed by the client.
Tip 5: Clearly State Fees and Costs
In every jurisdiction, lawyers are required to communicate the rate of fees; some require it to be in writing (with some exceptions) and some prefer it to be in writing. But, in most, if not all, jurisdictions, contingent fee agreements must be in writing.
It is also important to answer the questions of a retainer cost in the agreement. If you will have a retainer, how will work and how will it be used?
Unless you are employing a fixed fee model, your engagement letter should acknowledge the unpredictability of the total fee, as well as establishing the hourly rate and its potential fluctuation.
You ought to also include the reimbursable expenses and how expenses are calculated, while keeping in mind the significant costs that may arise.
Lastly, your engagement agreement should tell the client when they will be invoiced, when payments are due, the interest fee that will be tacked onto unpaid invoices, and the effect of a failure to object to invoices.
Clearly, a lot goes into drafting an engagement letter, but there are circumstances where you’re simply replicating the same engagement letter with minor modifications. With that in mind, you should consider ClientSide’s Form functionality, that enables you to quickly prepare your forms using a custom template created to suit your needs. Imagine sending your engagement letter out with just a few clicks. We’d love for you to see for yourself; click here to start your free trial today! Interested in more tips on improving your engagement letters? Click here for part 2!