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October 09, 2019

Prepare and Negotiate for Approval of a Scope Change (Part 1 of 3)

By Gary Richards, LegalBizDev

The most challenging type of scope change involves increasing the fee from the original estimate. Increasing the fee requires a possibly difficult conversation with the client and raises the question of how best to approach the client to obtain their approval of this additional work and fees. Consider this scenario:

  1. You know it is best practice to contact the client as soon as you detect a material scope change that will increase their fee.
  2. But your client resists agreeing to scope changes that you request as they occur, saying things like:

“Don’t worry about it… you may find some savings in the remaining work… we’ll just settle up on all those scope change adjustments when you are done with the complete matter.”

  1. But when you reached the end of the last three matters for this client, having taken the “we’ll just settle up when you are done” approach, there were serious disagreements about the fees that were over and above your original estimate.
  2. You ended up writing off a few thousand dollars each time. This is affecting your realization on their work and dampens your enthusiasm for doing more work for this client, even though they bring you a lot of business.
  3. Accordingly, you have decided to ask your client contact to agree to deal with scope changes and resulting fee increases as they occur for future matters and not to postpone the discussion until final billing.

Three very helpful ways to prepare for such discussions are recommended in Fisher, Ury, and Patton’s book, Getting to Yes: Negotiating Agreement Without Giving In. The first of these is:

 

Know your Best Alternative To a Negotiated Agreement (BATNA)

Start your preparation by addressing this question:

What could I do if they either don’t agree or they refuse to discuss my suggested new approach for handling scope increases as they occur?

To answer that question, try to list every step you could take to meet your/the firm’s needs without their agreement. Such a list would contain a range of steps from “very desirable” to “very undesirable.” That way, you can select the most desirable one on the list to become your BATNA. For example, you might come up with a list of steps that you could take like those below and then analyze each for its relative desirability based on how the business decision question is answered.

  1. Have our managing partner negotiate with my client contact’s boss.

Desirability: Could work, but to accomplish effectively, I would have to inform my client contact in advance to avoid a surprise, including explaining my reasons for doing so. That client contact’s reaction is hard to predict, but I think that my contact may have the final say as to where that client’s legal business goes.

Business decision questions: Can we risk the tension in the client relationship this would cause if they agree? Could we afford to lose this client?

  1. Decide to continue without a change, accepting the write-offs as usual if they occur.

Desirability: This would be the easiest step to take because it would require taking no risk in the client relationship beyond what occurs at the end of our work on the matter if they again resist the additional fees associated with legitimate scope changes. We would remain at risk for those associated write-offs.

Business decision question: Is a good client relationship here worth the possible continued write-offs?

  1. Suggest to my client contact that we can accept no further similar work from them unless we can agree to this new approach.

Desirability: This is the hardest step, since even if they react by agreeing to adjust fee expectations from scope creep as it occurs in order to maintain access to our legal services, an ultimatum like this would assuredly create stress in our relationship. But we could probably manage the stress given the increase in realization we would experience by avoiding the write-offs. However, they could instead say, “OK, goodbye.”

Business decision question: Could we afford to lose this client in order to avoid future write-offs?

  1. For their next new matter, cut corners on our thoroughness.

Desirability: Very undesirable. Unethical. Could lead to malpractice issues.

  1. For their next new matter, add a 15% contingency in anticipation of changes in scope so that we don’t have to go back to them for approval of the associated fee increase.

Desirability: Could work nicely, unless they insisted on seeing the task list we used to set the budget. Not likely, since they never have asked for that before. Plus, if we had no scope changes that equaled or exceeded that 15%, we could charge them less than they expected, which is good for client relationships.

Business decision question: Can we easily defend this practice to the client and ourselves?

  1. Urge the responsible partner in another practice area to augment their fees on the work they are doing for the same client so that for the two matters, we don’t have to write off anything.

Desirability: Possible “padding?” Very undesirable. Unethical. Could lead to malpractice issues.

Based on your analysis and your internal discussions of the business decision questions with your management/higher level partners, you would select one of the six steps before you try to negotiate the desired change with your client contact.

Deciding this way what your BATNA is before trying to negotiate with your client contact means you enter the discussion knowing exactly what you will do if they won’t discuss or agree to your new preferred approach. Having the firm’s approval for your BATNA gives you confidence not to spend more time than it is worth on tough negotiations.

In part 2 of this blog series, we will discuss how using objective external criteria can be persuasive in any scope change discussions and negotiations.

This blog series was adapted from the fifth edition of the Legal Project Management Quick Reference Guide, an online library of LPM tools and templates which is updated twice a year.

 

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