Flat fee contracts with law firms—OK?

It was a weird set of circumstances that induced former Commissioner Michael Williams to ask the Attorney General about the legality of flat fee contracts between a school district and a law firm. The LaMarque ISD was going out of business, with the board of trustees being replaced by a Board of Managers appointed by the Commissioner. Before the transfer of power, the LISD board of trustees hired a law firm to file a lawsuit to keep the district alive.

We’re just guessing that if the flat fee for this work had been $5000 nobody would have questioned the arrangement. But the contract fee was $300,000. This much was guaranteed to the law firm, regardless of how much time the lawyers spent on the case. But they would be keeping track of their time, and if they went beyond 750 hours, the district would be billed at the firm’s hourly rate: $400/hour. So the law firm could not possibly lose on this deal.

Commissioner Williams asked the A.G. whether such an arrangement amounted to an unconstitutional gift of public funds. Complicating the matter was the fact that the board of trustees would not be around to oversee the litigation, since they would be replaced by a Board of Managers.

The A.G. has now issued his opinion and it tells us….not much. There is no direct answer to the questions posed. Instead, the A.G. expresses some general principles and then notes that the situation is fraught with too many “fact issues” which cannot be resolved through an A.G.’s opinion.

What are the general principles? That the school board manages and governs the district; that the board can employ lawyers to sue or to defend the district; that the board can expend money for these purposes; that expenditures must be “for a public purpose” and must “provide a clear public benefit in return.” And that trustees have a lot of discretion to decide whether or not a “public purpose” and a “public benefit” are being provided.

A flat fee contract is permissible, and if the majority of the board thinks the deal is a good one, then it probably passes all legal tests. Obviously, if members of the public think the board is wasting money there is always “public comment time.”

Attorney General’s Opinion KP-0099 was issued June 27, 2016.


File this one under: GOVERNANCE