By Tom Porter
You probably have your favorite lawyer joke.You can laugh at the humor, but be careful not to buy into the message that every attorney is a bottom-dwelling bloodsucker. Sure, there are bad apples, but I often see responsible, ethical attorneys who come across negatively while they are simply trying to serve the aggressive goals of their clients.
If you understand how to establish and deploy strategic attorney relationships, your business can benefit tremendously. Otherwise, you will continue to experience unnecessary frustration from your interactions with members of the bar.
Let’s begin by understanding the value and function of the lawyer. To a layperson, an attorney is someone who knows the content of the law as a result of having learned it during law school. Thus, laypersons ask lawyers for information about the law and are surprised at how often the lawyer cannot answer the question.
Actually, law school teaches relatively little about the content of the law. There’s just too much law, it’s often hard to figure out, it varies from jurisdiction to jurisdiction, and it’s subject to change. Instead, law school focuses on teaching lawyers the analytical skill to puzzle through legal problems. Law students also learn about the legal process and key terminology from various legal subject areas. As for construction law, frankly, the subject is rarely touched on in law school. Most students emerge with their law diplomas having studied little on the topic of construction law.
After law school, lawyers may learn some of the substantive law for the areas in which their practice is focused–all the while forgetting much of what they learned about the law in other subject areas. For example, a specialist in construction law can be expected to know a fair amount about the common law of contracts. That specialist will also have learned in the course of practice – for the first time – statutes pertaining to construction inthe state in which he or she is located. The construction specialist is not likely to remain sharp on criminal law, constitutional law, or estate planning.
A skilled lawyer can help a construction firm in innumerable ways, particularly in the implementation of transactions and the avoidance, evaluation, and management of disputes.
The savvy lawyer should:
• Understand the fundamentals of how business is done in this industry;
• Know what contract terms are typical or unusual, and which will be most important if a dispute arises;
• Understand the legal framework in which contract terms will be construed and applied;
• Select forms most appropriate for the situation presented, and draft custom terms that meet your needs;
• Negotiate skillfully toward solutions that align with your interests;
• Open and maintain a cordial, productive line of communication with the other party’s attorney;
• Advise on and help implement strategies for success in both transactions and dispute management;
• Provide confidential assistance protected by the attorney-client privilege;
• Evaluate objectively the strengths of the arguments on each side of a dispute;
• Advocate forcefully for the client’s position;
• Identify and pursue opportunities for resolution of disputes; and
• Present clear alternatives from among which the client can select.
Remember,the ability of lawyers to benefit your firm in these areas depends on how early you involve them and how carefully you heed their advice. The risks and costs to your business are likely to be lower if you involve the legal input earlier. Think of the lawyer as a planning resource rather than as a defensive tool. If you wait to engage legal help until after the battle lines are drawn, the ability of the lawyer to steer the outcome in a favorable direction is diminished.
With this background about lawyers in general, one question is whether your company should have an in-house attorney capability. For most construction firms of at least moderate size, the answer should be “yes.”
Here are the reasons:
• If you assume they are doing the same work, an in-house lawyer costs much less than an outside lawyer. By hiring an outside firm, you are paying that firm’s overhead and profit. Figure that the outside attorney cost is 1.5 to 2 times what you pay for an in-house lawyer’s salary, benefits, and support.
• An in-house lawyer is basically free from conflicts of interest. That helps assure that he/she is really working for your benefit. It also means that the in-house lawyer’s time can be focused on your highest business priorities.
• Most, but not all, of a construction company’s legal affairs involve the subject of construction law. A lawyer with experience in that specialty can offer good value.
• An in-house lawyer will learn about your business and that learning will rebound to your company’s advantage. An outside attorneywon’t know the specific people, processes, or priorities of your company.
• The in-house lawyer gives you a point of coordination with the outside lawyers you hire. The in-house lawyer should have insight regarding selection of outside attorneys and fee arrangements. The in-house lawyer can also help translate the advice of outside attorneys into a form you can understand and use.
•You are more likely to consult the legal resource as needed, and to do so in a timely fashion, if you do not have to select the specific lawyer each time and pay for the consultation as a variable cost.
If your legal needs are too limited to make in-house counsel cost effective, you should still establish a strategic relationship with a limited number of outside attorneys with whom you work regularly, so that you develop some of the advantages that in-house counsel brings. Trying to hire a new and different lawyer every time a question comes along is not a productive approach.
Understand that an in-house attorney will not entirely eliminate the need for outside counsel. Outside attorneys will still be needed for these reasons:
•Litigation. In most cases, you want to use outside attorneys for in-court litigation and probably also for arbitration. It is hard for an in-house attorney to maintain the focus or keep the skills sharp to handle litigation effectively, unless you are a company with so much litigation that you have a component of your in-house staff dedicated to that function.
•Expertise. No lawyer can be an expert in every facet of the law. When legal questions arise in specialized areas such as tax, employee benefits, securities, patents, etc., your in-house lawyer will need to tap outside experts. Hopefully your in-house lawyer will be able to extract that expert knowledge from the outside attorney more efficiently than a non-attorney could do.
•Local jurisdiction. Unfortunately, the attorney licensing system in the United States remains on a state-by-state basis. Depending on the nature of the legal issue, you may need to hire someone licensed by the state in question. While there are legitimate methods for attorneys from one jurisdiction to practice in another, it may involve affiliating with a local attorney regarding that matter.
•Local knowledge. Licensing rules aside, an attorney from the locality where the dispute is pending can offer benefit in understanding the judges and opposing lawyers, as well as the unique elements of local practice.
When hiring an outside attorney, some factors are to be considered:
•Expertise. If you are going to hire an outside attorney, be sure you they have theexpertise you need. Question the candidates carefully about their expertise and experience specific to your issues of concern.
• Geography. For certain legal matters, such as litigation and regulatory affairs, pick someone who is located and enjoys a good reputation in the relevant legal community.
•Website. Review the law firm’s website to learn about their background and areas of specialization. Study the credentials for the lawyer who will be handling your matter.
•Ratings. There are various systems for rating lawyers. The most venerable system is Martindale Hubbell (http://www.martindale.com). An “AV” rating by Martindale is intended to indicate a lawyer at the highest level for capability and ethics. Best Lawyers in America, Super Lawyers, and Avvo are other services that purport to evaluate lawyers; it is helpful to look at these sources, but do not put undue confidence in what they say.
• Individual credentials. Select outside lawyers based on the capabilities of the individual lawyer, not the size or reputation of the firm in general, subject to the following points:
◦Some matters require staffing and resources beyond one or two lawyers; in those cases, pick a firm with the necessary depth.
◦If you have built a strong relationship of trust with an individual lawyer in one area, consider using his/her partners in other specialty areas, but only if they have the necessary expertise. The lawyer whom you trust can help assure that you are getting the right attention and quality of service from others in the firm.
•Rates. Most legal fees are determined based on hourly billing rates. It is smart to find out the hourly rates of the lead lawyer you expect to hire and anyone else who may be helping on the assignment. Lawyers usually favor the hourly rate, so you may have to push for consideration of alternatives. Although lawyers often refer to “standard” rates, there is nothing magical about these numbers; see if you can find a cost-effective alternative, such as one of the following:
◦Discounted rates. Try for discounts from the quoted rates, particularly for a matter on which many hours are expected. A law firm may be more amenable to a discount if there is an upside – a bonus in the event of a favorable result.
◦Blended rates. Consider a blended rate so that all attorneys within a firm who work on the file are charging the same rate– regardless of experience level.
◦Flat fees.If the scope of the assignment can be defined reasonably well, a flat fee or a flat monthly amount can work. Unit pricing can also work if a particular type of service is repeated.
◦Fee caps. Lawyers may agree to bill hourly rates up to a maximum fee amount.
◦Contingent fees. A plaintiff’s lawyer handling a personal injury suit usually relies on contingent fees, but they are not limited to that setting. Be creative about how to align the lawyer’s incentive with your own. Partial contingencies are also allowed. For example, the lawyer may bepaid $100 per hour monthly as the lawsuit proceeds,withthe remaining fee dependingon how the case outcome compares to the last settlement offer before suit was filed.
It is good practice to document your relationship with the lawyer, including the fee arrangement, in an engagement letter. Most lawyers will prepare this in any event and request you to sign it. Of course, make sure the letter comports with your understanding of the deal.
This is an excerpt from the book Profit, Risk and Leadership by Tom Porter. This book provides an insider’s perspective on the problems faced by construction business owners and provides a myriad of solutions that can be applied to solve these issues. It can be found at www.bnibooks.com