Fees and billing: How to justify unexpected fees

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Before starting this section, it is important to define terms. In many cases, clients might claim that there has been an overrun where, in fact, you have carried out a completely separate piece of work.

While the definition of an overrun can be quite hard to pin down, most individuals working in practice know that they spend far more time dealing with additional work for which fees have not been agreed than anything else in this field.

That is largely because human nature says that where you were expecting to pay a certain probably fixed sum of money, you will not be happy to be asked for a higher figure even with the benefit of a lengthy justification. In reality, far too many of us are happy to send out the higher fee without any explanation.

Engagement letters

The starting point for avoiding such issues is to prepare a detailed and well-composed engagement letter, which delineates exactly what the work carried out under the engagement. It helps to get it signed by the client.

This will prevent problems in the future and could lead to a significant increase in fees where you are able to prove to the client that rather than an overrun, they have commissioned a separate piece of work. Ideally, that separate piece of work should also be identified in advance and covered by an engagement letter of its own.

Client’s shoes

I used the example of a builder decorating your home in the article on communication. A slightly different version works well in this context too.

If you need to get your house decorated then the starting point is probably to contact three builders and get quotes. You will then accept either the cheapest or the one in the middle, depending upon your nature.

At that point, you will have an expectation of paying the amount that they have quoted. Indeed, you may well be telling your friends at the tennis club that you have found a wonderful builder who did a great job for your brother-in-law and is only charging £5,000 for decorating your home.

When you receive a bill for £10,000 you will be spluttering and running to the tennis club to tell those same friends that this person is a conman. You may forget to mention the fact that you asked them to double the size of the new extension halfway through the project.

Accountants don’t like to be treated as conmen and therefore it is necessary to work out the best means of calming clients down and agreeing the highest fee they will reasonably pay without taking too much umbrage.

Justification

Overruns occur for many different reasons. Sometimes it is necessary to admit that they are entirely down to failures by your team. For example, if you could not get the right mix of staff for an audit and a senior manager was doing work that would normally be carried out by the trainee then it is a bit rich to ask the client to pay for the highly inflated charge out rate.

On the other hand, clients can be wholly responsible for disasters. Keeping to the audit analogy, if they fail to deliver papers on time and your staff is sitting around doing very little for a week then you can reasonably suggest that all of the additional costs should be met by the client.

In many cases the problems will be on both sides, which can make getting a sensible extra fee a sensitive matter and sometimes an impossibility if an indignant client wishes to stand firm.

For those working in the tax field, additional costs often result from failures by a third party, very occasionally an external adviser and far more commonly the sadly understaffed and often undertrained HMRC.

Where third parties have caused massive delays and significant cost overruns, you could think about asking for compensation but the odds are stacked against taxpayers and few claims are successful. The consequence is that you and your client will have suffered and need to agree who is to take the hit or whether it will be shared.

It is always worth bearing in mind the fact that when you have carried out additional work that is of high quality and has value, you should not be afraid to tell the client that this is the case. Too often, they may not realise or understand the benefits of your services, particularly where these are highly technical.

Negotiation

In almost all cases, it is best to address these problems at the earliest opportunity. In this way, the additional costs might be kept to a minimum and the client is likely to be more resigned to accepting a further fee if they remember the reasons for the overrun, particularly where they are feeling guilty. They may also need your help to close the project such as if this happens halfway through a tax investigation.

On the other hand, with some open-ended projects, for example negotiations with HMRC, it can be better to wait until a positive outcome has been achieved. If a client has the benefit of an extra £100,000 in the bank thanks to a successful repayment claim, a fee note for £15,000 rather than the original £10,000 might well be accepted with a smile and the promise of a slap up dinner to celebrate. We can all dream.

About Philip Fisher

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13th Feb 2018 15:48

All fees should bear relation to the skill level and reasonable time required, so your comment '
if you could not get the right mix of staff for an audit and a senior manager was doing work that would normally be carried out by the trainee then it is a bit rich to ask the client to pay for the highly inflated charge out rate' is understated its theft in my opinion and I hope not much of it goes on but I suspect not

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13th Feb 2018 15:51

Also Institute approved / suggested engagement letters are too long and unnecessarily complicated and hard in many instances to comprehend

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