When planning this article I talked with some lawyers about engagement letters.

A few of these lawyers were from large firms, many were from medium to small firms and one was a sole practitioner. About half of these people send out engagement letters to their clients as standard practice - and this included the sole practitioner. In fact, some of these firms insisted that a new file could not be opened without the engagement letter being sent.

The other 50% of the lawyers I spoke with were unconvinced about the benefits of an engagement letter. They said they were too busy and their clients didn’t need them. One brave soul said he’d always thought that they were a good idea but didn’t know where to start. This article should convince sceptical readers about the benefits of an engagement letter.

Sending an engagement letter benefits both the firm and the client. It is a very strong tool in helping to manage client needs and expectations, therefore enhancing the relationship with a client.

Sending a well-drafted letter of engagement also means there are no surprises – for either side. The scope, expectations and cost estimate are clearly stated in the letter.

The letter can be drafted by the partner involved, the delegated junior lawyer or the legal executive doing the work. However, it must be checked and signed off by the supervising partner.

Ridiculous as this may sound, I have a friend who received an engagement letter (for which he had to nag his lawyer) in which the fields to enter his name and other details and so on had not been entered – clearly a failure to check outgoing correspondence is an issue at this firm! Seriously, this was not a good start to the matter, and turned out later to be symptomatic of the levels of service my friend received.

An engagement letter is sent every time a new matter is opened. It doesn’t matter if you are working on five concurrent matters for that particular client – each matter must be opened with the engagement letter. A protocol that will not allow a file to be opened until an engagement letter, including a cost estimate, is sent is a good idea.

A well-drafted letter firstly sets out the scope of the matter. It reiterates the client’s instructions. For a law firm, it ensures they have understood what the client requires. This process also helps the lawyer think about the matter from the client’s perspective.

Secondly, the letter must give the client a cost estimate for the matter; this includes the estimated fee and disbursements, and make sure GST is included. Clients often feel awkward about asking, but most definitely want to know up-front, the estimated cost. It is preferable for you to provide this as a matter of course rather than for them having to screw up the courage to ask.

For some matters, estimating a fee can be difficult. However, that is no excuse. In the letter, break down each stage in the matter and identify areas where there may be a possible fee blowout. The breakdown also helps the client understand the stages and processes of the matter. Clients often have little appreciation of what goes on behind the scenes - this is a good way of educating them.

In addition, and very importantly, your letter should tell your client when the fee will be billed (when the matter is concluded or by interim billing) and how (by invoice or by deduction).

A Terms of Engagement statement should always be included with the engagement letter. This sets out when you expect to be paid (by return, 20^th of the month, by deduction or whatever). It should also state what will happen if payment is late or there is no payment at all.

There are huge benefits for both parties in providing a cost estimate. It eliminates the surprise factor as the client knows what to expect and helps to prevent a fee write-off. Estimates help the client to budget. If there are problems with the fee, the issues can be addressed early on – not when it comes to billing time.

Thirdly, communication channels for the client should be identified. If you are delegating the matter, state who will be dealing with the day-to-day tasks and the name of your PA or legal executive. Make sure your client knows all the appropriate email addresses and phone numbers.

A duplicate copy of the engagement letter should be sent to be signed by the client and returned before any work is begun. Although this approach may have its difficulties if the matter is urgent, it ensures there is a good paper trail and both you and your client understand the nature of the matter and the estimated costs.

Sending out an engagement letter is good discipline and fundamental business practice. It helps manage client expectations and ensures there are no surprises – for lawyer or client.