You, Too, Can Cut Deals For Legal Advice

Now, big-company tactics are working for small business

Like most small-business owners, Ted Berg is constantly nagged by minor legal questions. But until recently, he never made a practice of asking his attorneys for answers. At $150 to $200 per hour, it was too expensive to call a lawyer every time he was unsure about the rules governing his $2 million Englewood Cliffs (N.J.) computer consulting company, Constructive Systems Corp.

Worried that his reluctance to make $50 phone calls could lead to legal problems costing thousands to resolve, Berg made an innovative deal with Philadelphia's Manta & Welge last November. For a flat fee of $500 a month, the law firm now handles all of his corporate, real estate, employment, and collection issues. Manta & Welge has already reviewed Constructive Systems' new lease, begun work on the company's first employee manual, and provided Berg with answers to innumerable day-to-day legal questions. After one impromptu inquiry about state sales tax regulations--a matter Berg says he would have considered too trivial to raise with an attorney in the past--the law firm discovered a problem in Constructive Systems' invoice that threatened to create expensive legal disputes. The fixed-fee agreement "is basically a legal insurance policy," crows Berg.

MORE CLOUT. Until recently, only a large corporation could strike this kind of deal. Armed with multimillion-dollar legal budgets, giants such as Chrysler Corp. and DuPont Co. have experimented with fixed-fee agreements and various new techniques for managing attorneys. Now, their strategies are filtering down. "Small-business people don't think that they have enough clout to make deals with the law firms, but they do. The marketplace is changing," says Manta & Welge's Kathleen Misturak-Gingrich.

One popular new technique small businesses should employ more often is simply asking for a discount. Law firms never used to cut stated billing rates but now do so for clients willing to ship over most of their legal work--and gutsy enough to ask. The size of the discount depends upon the amount of business and the stature of the firm, of course, but even the smallest client should regard the quoted rates a bit like a car's sticker price. Multibillion-dollar corporations receive 25% breaks from major firms; small companies should aim for 5% to 10%.

In addition to bargaining for lower hourly rates, big corporations have learned that it's also important to set strict limits on how much lawyers can charge you for expenses such as photocopying, faxing, and electronic research. Bills of 25 cents a page for photocopying and $2 a page for outgoing domestic faxes were not uncommon during the 1980s. Insist on paying only for your attorney's actual costs. (A model lawyer retention letter on costs and other issues is available in BUSINESS WEEK Online's small-business center on America Online.)

FEES DROP. Even if your outside attorneys are thrifty, in-house lawyers are generally a good investment once legal bills reach about $500,000 annually. It costs about $200,000 a year to pay and support a corporate attorney. Some work will still have to be shipped out, but you'll find that lawyers magically start charging less once they know that experienced eyes are reviewing the bills. There are intangible benefits to bringing an attorney aboard, too. The lawyer learns the business, gets to know management, and is in a far better position to prevent legal problems from even arising.

If you can't afford a full-time in-house attorney, you should consider hiring one part-time. At a rate of $130 per hour, Macrochem Corp. hired James W. Spindler to spend two afternoons on-site at its Lexington (Mass.) office. A former general counsel of Computervision Corp., Spindler is founder of the Boston-based Association of Independent General Counsel. Macrochem CEO Alvin J. Karloff estimates that hiring Spindler has cut annual legal bills from $200,000 to about $170,000 for the biotech company. Says Karloff: "Basically, we are getting more advice and it's costing us less."

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