Fee Agreements

The Colorado Bar Association Ethics Committee issued Formal Ethics Opinion 143, Foundations of a Fee Agreement in 2021 (revised in 2022).  This article summarizes the Opinion and explores the best practices concerning fee agreements for lawyers.

Introduction

Colo. RPC 1.5(b) requires that when the lawyer has not regularly represented the client, the basis or rate of the fee should be communicated in writing within a reasonable time after the representation begins. Lawyers are encouraged to use an agreement to establish clear client expectations and avoid misunderstandings.  The agreement should be drafted in plain language to ensure accurate understanding by the client. It is recommended that client sign and date the agreement.

Terms of a Fee Agreement

• Client Identity and Communication: The agreement should identify the client, and if different, the person paying for the representation. Additionally, the agreement should outline the mode and frequency of communication to ensure effective collaboration throughout the case.
• Scope and Purpose:Full Scope/Limited Scope Representation: The agreement should define the services (full or limited) the lawyer will provide and those services that will not be included. It is recommended that clients initial relevant sections to reinforce their understanding. It is also important to identify the services not included.
• Fees and Costs:
  1. Hourly Fee: Lawyers must communicate the hourly rate or basis to the client in writing. An initial retainer that the client replenishes as used is recommended for safeguarding the lawyer’s interests. The fee agreement should address the terms of the initial retainer including amount, amount to replenish, and when the amount is due.
  2. Flat Fee: For flat fee agreements, the agreement should include a description of services, payment amount, payment process and timing, and how fees will be calculated in case of early termination.  Flat fee agreements must be in writing.
  3. Contingent Fee: Complying with Colo. RPC 1.5(c), the agreement must be signed by both parties, and the lawyer should retain a copy for seven years after case resolution. Substantial compliance with all provisions of the rule is necessary for enforceability.
  4. Subscription Billing and Engagement Retainers: Clearly distinguish between subscription fees and engagement retainers and ensure compliance with relevant rules to prevent mismanagement of funds.
  5. Costs: The agreement should specify the type of costs and outline procedures for handling costs that may not be known upfront.
  6. Billing: The agreement should clarify the frequency of invoices, client payment obligations, and the lawyer’s right to charge interest for unpaid fees and expenses. If you intend to charge interest, disclosure in the fee agreement that the interest will be charged, the percentage charged, and the period for which interest will be imposed.
  7. Prohibitions: Certain provisions are prohibited, including nonrefundable fees and limiting liability for malpractice. Also, the fee agreement cannot bar the client from filing a request for investigation with the Office of the Attorney Regulation Counsel.
• File Retention, Return, and Destruction: The agreement should address how the lawyer will maintain the client’s file during representation and the process for returning the file after representation ends.  See Rule 1.16A).
• Termination: Inform the client of their right to terminate the lawyer-client relationship at any time without penalty. Similarly, the lawyer should explain under what circumstances they may terminate the representation.
• Third Party Considerations: Address scenarios involving third parties, including third-party payment, succession planning and co-counseling arrangements. For newer lawyers, include in the fee agreement the possibility of seeking advice from other counsel to provide competent representation. Ensure communication regarding billing is directly with the client, regardless of the payment source.

Conclusion: Building Trust and Transparency

A well-drafted fee agreement serves as a critical tool in establishing a strong lawyer-client relationship. By following best practices, lawyers can promote transparency, mutual understanding, and compliance with ethical rules, fostering trust and satisfaction in their professional engagements with clients.