SMALL BUSINESS Companies cut their legal costs by hiring a fractional attorney



Paying a lawyer a flat fee for a set number of hours per month is a new concept for the legal profession.
DALLAS MORNING NEWS
Deena Fryman doesn't think her business will ever need a full-time attorney, so she hired part of one.
To be precise, she gets five hours of Plano, Texas, attorney Richard Armstrong's time every month for her 20-employee business, Superior Striping Service Inc.
"It's been perfect for us," said
Fryman, vice president of the Garland, Texas-based firm run by her and her husband. "It's definitely a savings. Plus, it's so nice to know that you can just pick up the phone. It's like he's our own attorney."
Armstrong said he came up with his "fractional general counsel" program to offer small businesses a way to handle occasional legal needs.
An old idea
The "fractional" term borrows from the aviation world, where a number of companies sell customers part of a jet. Fractional jet companies let participants pay for the use of one-fourth of a jet or one-third of a jet, for example, plus maintenance fees and hourly costs for using the jet.
The idea of fractional professionals -- top-level executives who work part time at smaller companies -- isn't new. It's been done for years in accounting, technology and human resources, among other fields.
But it's a relatively new idea for lawyers -- and some attorneys see potential pitfalls in the arrangement. The closest parallel is prepaid legal programs that offer a certain amount of legal help in exchange for a monthly fee.
Armstrong, who has operated his own law office since 1983, has signed up a handful of clients interested in having a fractional attorney. They commit to using him a few hours a month -- from two or three hours to as many as six hours -- for a set fee.
In exchange, they can throw him any legal issue or problem that they want. If they go over the maximum number of hours they've paid for, they pay his usual hourly rate, which is 20 percent to 30 percent higher than the fractional general counsel rate.
Question
When should a company hire its own general counsel rather than rely on outside help? Legal experts say that each company is unique.
"That depends so much on the circumstances and the nature of the industry," said Henry Hu, a University of Texas law professor. "It also involves the trade-off in terms of the need for expensive expertise versus a kind of muddling through."
Even small companies may need their own general counsels if they're in heavily regulated industries, such as financial institutions, he said. "There's so much stuff that's legal in nature," he said.
By comparison, "if you're in a lightly regulated industry, say some kind of industrial company that doesn't pollute very much or only pollutes in states that don't care, then, everything else held equal, you're less likely to have in-house general counsel," Hu said.
Fees
But the costs can often swing the decision toward hiring a staff attorney, he added.
"Outside law firms -- even in today's legal market -- charge an awful lot," Hu said. "It's much cheaper to have your in-house people."
Fees charged by lawyers can range widely, depending on the firm's reputation, areas of expertise, eagerness to pick up an account and the general business climate. Dallas attorney David Washburn, who has many small businesses as clients, says his rate is $350 an hour. Some lawyers may charge as little as $150, he said, while others set their rates at more than $400 an hour -- with discounts "widely given."
Washburn said he can see little advantage to the fractional general counsel idea, particularly when it's offered by a small firm without a broad range of experts to call upon.
A large law firm can negotiate lower fees, set a ceiling on costs, offer broader expertise and keep a close eye on the issues and developments affecting a company -- and do it better than single lawyers or small law firms, said Washburn, a partner in Arter & amp; Hadden.
"It's a twist," he said of the fractional concept. "There's nothing -- to be quite honest -- that unique about it. I do find it an interesting twist."
Difficult decision
For a small business, the decision to hire legal help is often difficult, whether it's an outside counsel or an in-house attorney. Most bridge the gap by retaining attorneys when they need them and avoiding them when they don't.
Armstrong, who declined to state his hourly fees, says he's seen too many clients who didn't seek out a lawyer until they had gotten into pretty deep water, with complications that could have been avoided if they had received legal advice much sooner.

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