Buyer Beware: “Low Ball” Legal Budgets

SAN FRANCISCO - May 4, 2016

Businesses need certainty. They rely on budgets to function. And because they have to, lawyers reluctantly will provide clients some form of litigation budget to win the business.

Mid-market companies are particularly likely to receive low-ball budgets because, while they often have significant one-off cases, they do not have enough recurring legal work to secure volume-based fixed fee deals from big firms. In addition, their inside counsel may not be familiar with the tasks and costs associated with the specific matter at issue.

Low-ball budgets are bad for clients and hurt the profession as a whole. But there is a straightforward solution: clients should demand – and lawyers should provide –more detail in their budgets.

Lawyers need to provide detailed budgets to demonstrate why their numbers are realistic but the competitions’ are not. For example, a friend of mine recently told me the most experienced M&A lawyer in his office knows that a deal will cost $200-$400k and will tell clients that a budget lower than this isn’t real. Unfortunately, this response is not terribly helpful for a General Counsel who needs to understand and explain to management why the company should hire a lawyer that looks far more expensive than the other contenders.

By contrast, if the lawyer’s budget provides information about the tasks involved, who will be doing them, how long they will take, what the average costs-per-task will be, and the variables/assumptions that affect the budget, then the GC has all the information she needs to make the right decision and justify it.

Here’s the rub: creating a detailed, realistic budget is hard. It takes time to do it right. But giving clients what they need to make an informed decision is the key to winning the business AND keeping a happy, loyal client.