What Affects the Cost of Creating a Contract
Client-specific factors also play a role in the time and cost associated with drafting a contract. For example, a public charity or many governmental entities need agreements to be written in terms and conditions that can be broadly understood by multiple stakeholders, including non-lawyers. Many nonprofit organizations require a certain minimum set of contract provisions or clauses be included in everything drafted for even routine agreements. A charity that receives public money may be contractually obligated to provide the terms of its agreements, such as sponsorship or affiliation agreements, to the state Attorney General’s office, which has a watchdog and oversight role to carry out in protecting public funds.
From a more practical perspective, third parties involved with a particular transaction may have certain expectations about the form of the written agreement. If a bank is a party, it may want an agreement in a specific order. If one or more of the parties is a large corporation with in-house counsel, even with a less important agreement the company’s in-house lawyers may insist that the parties’ legal counsel follow detailed guidelines in preparing the contract. Areas of law can have different customs or norms in terms of language or approach to the structure or detail within an agreement. The parties’ interactions and negotiations about the agreement itself may also increase the time spent on the contract.
Driven by the need for data to better price their services, some lawyers now track the amount of time it takes to perform various tasks . There are two standard options for tracking time: 1) billable hours spent on various tasks or "activities" associated with the contract, or, 2) the contract viewed as a whole (i.e., billing for 10 hours if the contract is essentially finished after 10 hours of work). Some lawyers charge for time worked in six minute increments, others bill time in quarters (15-minute increments) or in half-hour blocks.
In addition, some firms have developed specialized divisions or boutique practices focused on contract analysis or preparation. For example, within the intellectual property or environmental group of a corporate law department there may be subgroups for work on transactions or contracts. Similarly, a government, or labor and employment, or land use practice may have team members who specialize on the transactional side.
Some industries involve ongoing contractual relationships, which may present opportunities to leverage existing templates or concepts/formulations. In particular, this can be the case when there is periodic contracting on the same type of agreement. In such cases, the lawyer may spend time developing and/or modifying a prototype for the agreement and then thereafter only need to occasionally customize the template for the specific terms and conditions at issue for each new contract. These situations provide additional opportunities to improve the efficiency of the contract drafting process and reduce costs for the client.
Contract Drafting Costs
For lawyer fees, and especially for contract drafting fees, there are so many variables that I cannot begin to describe them all. However, I can give you some average costs to work within.
Most contracts: If a contract is simple and basic – meaning it’s a fill-in-the-blank form – your cost will typically range from $300 to $3,000. At the low end of the range, you’ll get a simple contract, and may even have to do some of the fill-ins yourself. At the high end of the range, you can expect to receive a contract complete with the fill-ins and reviewed by the lawyer. This is, however, a very basic contract without bells and whistles. If you want more revisions – for example, a lot of back-and-forth – your costs will likely increase accordingly.
Medium-sized contracts: For a medium-sized contract (think most employment agreements), your costs typically range from $2,000 to $5,000. This will cover back-and-forth with the lawyer and one major revision to the contract.
Large contracts: If your needs are large and require extensive work, your costs will be anywhere from $5,000 to $10,000. This will cover any major revisions or redrafts that are required.
If you hire a lawyer on an hourly basis, your lawyer’s hourly rate will typically cost you between $200 to $900 – again depending on location and the lawyer’s experience level.
Per Hour Rates Considered
Contract drafting services are usually billed by one of two methods: hourly or flat fees. An hourly fee is simply a set amount per hour of time billed. In contrast, a flat fee is an all-in price for a particular service, regardless of the actual time the service takes. Each method has its advantages and disadvantages.
Most contract drafting is billed hourly. In fact, all my contract drafting is charged hourly. The advantage of this method is that the cost of the service is fixed. In other words, charges are based on exactly what is needed, as opposed to something that may or may not be necessary. There is no consideration of "padding" where the amount of time charged is larger than what was reasonably needed because you don’t have to worry about paying for time that was not necessary for the job.
The downside of an hourly fee agreement is that it doesn’t account for speed. While generally speed increases with experience, more often than not you are at the mercy of how fast the professional can go and there is not much that can be done about that. The only thing you can do is make sure that the professional is not being inefficient with your time or theirs.
The alternative to hourly billing is flat fees. There are several advantages to a flat fee arrangement. First, you know from the start what the service is going to cost you. Second, because the time limitation is based on budget not hourly billing rates, the service provider has some incentive to be efficient and finish the job quickly. Outside of contractual language, most contract drafting is driven by numbers. The less time the service provider needs to spend on the project the cheaper it will be. Further, having a flat fee does not add to the overall cost of the project.
Flat fees are not without their downside as well. First, the service must be straightforward with no issues. Second, the service provider must actually have experience with the contract drafting involved. I have been able to use some of my experience with a specific type of contract to offer flat fee rates, but this is the exception not the rule.
While flat fees are not right for everyone, they can really be beneficial, especially if there is sufficient experience with the contract to be drafted. The issue in drafting contracts and other legal documents is that they are rarely cookie-cutter. This necessitates an hourly rate for the work involved.
Fee Tips
You might think that the best way to save money on legal fees when it comes to contract drafting is to do it yourself, but often times that is not the best idea. It is important to have at least some counsel review your contract before you sign it to ensure that the terms are favorable and that no important terms are missing. So, the question then becomes, how can you reduce your legal fees when hiring a lawyer to draft or review a contract for you?
There are a few strategies that can help keep your costs down. First, be as clear as possible about what you want the contract to say. If you have some specific goals , let your lawyer know. Second, if there are certain terms that you know should be included, make sure you provide them to the lawyer up front, so he/she can include them in the draft contract (and not have to go back and make repeated changes down the road). Finally, same day or very next day reviews of contracts will come at a premium, so if you can plan ahead and give the lawyer a few days to review the contract and then get it back to you, you might save some money. In short, communicate early and clearly with your lawyer so they understand your needs and can help you achieve them.
When to Get a Lawyer for Contract Drafts
On the flip side, there are times when it’s worth the extra cost of hiring a lawyer to draft a contract. There are a few situations which stand out as particularly good examples for this scenario. These include when the contract is complex and broad, involves multiple parties or jurisdictions or a substantial interval of time, or when one of the parties is a business or other organization that may have vastly superior clout to the other party.
There are several compelling reasons that a lawyer is justified to handle the drafting, and in some cases revision, of your contract. Most obviously, a lawyer is capable of ensuring that the meaning of the legalese in your contract is consistent and clear. Legalese tends to be imprecise, and when written into a contract, it may quickly become a point of contention. A lawyer with drafting and litigation experience will likely be able to predict where such disagreements might happen between parties to a contract, or if the terms of the contract get blurred over time. Legalese typically favors the party who drafted the document; a lawyer can help equally represent your interests in the document.
It should also go without saying that an experienced lawyer will be able to pinpoint any potential issues that may not have immediately been apparent to you. With experience comes the ability to predict problems before they arise, and a lawyer will know exactly what to include in the contract to safeguard a client. A good lawyer will draft a contract to meet your specific needs, not just a "standard" contract similar to what they’ve done in the past. This attention to detail can mean the difference between a lawsuit and a clean break.
Finally, a properly drafted contract by a competent lawyer will certainly ensure that this contract will be legally valid and enforceable. An unenforceable contract is as good as no contract at all.
Questions for Your Lawyer About Their Costs
Your lawyer should be able to give you answers to these important questions:
- How do you charge for your services? An hourly rate? A flat fee? An estimate of the total fee for particular services? In increments (e.g., 15 minutes, 20 minutes, 30 minutes) for all work performed?
- Can you come up with a total estimate, and can you commit to this estimate as the total fee, or telling me in advance if expenses may exceed your estimate?
- How do you bill – at the beginning of services? When completed? At intervals? Weekly? Monthly? Not at all upon completion?
- When your bill comes due, will you charge interest if the bill is not paid promptly? How much?
- Will you charge for mileage (if so, how much)?
- Will you charge travel expenses, including lodging costs? If so, will I be asked in advance to authorize such expenses?
- Will you expect me to pay your travel expenses if your representation is required out of the state where you routinely practice?
8 . Will I be expected to pay the cost of copying documents?
- Will I be expected to pay the costs incurred for your staff?
- Will I be expected to pay the costs charged by other lawyers you may hire to help you with the case?
- Will I be expected to pay the costs incurred by experts and investigators you may hire to assist you in the case?
- Will you expect me to pay costs up front, or will you pay those costs yourself and then charge me?
- Will you expect me to pay the costs billed for the time spent by your paralegals on my case – do you charge the same rate as for your own work on the case?
- When will I be expected to pay the costs you have incurred on my case?
- What are the minimum and maximum fees, and will I be informed in advance when the maximum will be reached?
- Will I be told in advance if my case will incur more serious expense than originally anticipated due to unforeseen developments?