Estimated TPA fee approved by client in engagement letter but time logged ends up being less

Fee Example: a TPA quotes $15k to $20K for TPA work for a plan year for a new client, not knowing what the records will look like.  The plan sponsor signs an engagement letter agreeing to the fee range.  Time tracked to complete the year ends up being $12,000.  Is it ethical for the TPA to bill $15,000?  Can a client demand to see time entries?   I think we all know recording exact time doesn't happen.  Many small things go un-logged into time/billing.  This would be a case where the TPA fee is paid by the plan sponsor not from plan assets. 

Ooh, just in time for everyone's 2 hours of Ethics CE for the year!

"The fact that you're even asking...."

Ok - sounds like  no.   and yes I'm signed up for 2 hours on Dec 8.

Couple of thoughts.

1. If you agreed to bill by the hour, then bill by the hour.

2. There is a value in the services that isn't tied to time. It's tied to knowledge and efficiency. One shouldn't be punished for being smart and working quickly.

3. If you bill less than estimated, be sure the client is aware. And remind them that things sometimes go the other way and you would still expect to be paid.

Great comments by Bill. Check the exact language of your agreement. Also, what would have happened had you spent more time than estimated and time charges exceeded $20,000? If agreement said "estimated to be between $15,000 and $20,000" then I think you should invoice actual $12,000 in time charges. If it says "fee will range between ..." then I think you're OK to bill the $15,000. Finally, if you employ a "realization percentage" to your hourly rate (e.g., staff person's hourly rate is $200 but you routinely accrue time charges at 80% (so $160), and at realization your time charges are under $15,000 but at higher realization they exceed it, I think you're ethical to charge $15k - BUT, make sure whatever you do is supported by the language in your service agreement.

Regardless, if you charge less and communicate to client that records were better and you were more efficient than expected and so time charges are less than estimated, you may earn some good will "brownie points" in addition to taking the ethics question off the table.

Just wanted to add my two cents.  There is nothing wrong with flat fee billing.  Nor is there anything wrong with hourly billing.  But, you need to see what your agreement was with the client.  While the law requires your fees to be reasonable, I would argue that this is a standard to be determined by the plan sponsor (and we put that into our service agreements, BTW).  So, if the client determined that the $15K fee was reasonable, the fact that you could have charged $12K and still made money is likely not relevant.  (If, on the other hand, you were accused of charging an unconscionable fee under Circular 230, there would be an argument that what others would have charged or how much time it took to do the project could be probative of whether the fee was off the chart.  The difference between $12K and $15K,however, should be so large that the high end is "unconscionable.")

Having said all that, your service agreement or your "estimate" language likely made it clear whether you were billing by the hour or by a flat fee, and you need to stand by that.  And, what everyone else said about whether you would charge more if it had taken you longer, etc., are important factors.

Probably adds nothing but my two cents.  What does your contract provide?  Comply with the terms of the contract.  If the contract is fuzzy on the issue, which is your fault, then let your conscience be your guide.  I would hope that your conscience opts in favor of the client.  I would add that it disappoints me to see this question arise.

I advised in this situation to charge less - the actual hourly time and create goodwill with their new client.  Still made money and have a good relationship to start off with.  Some things such as few more dollars and possible related aggravation just aren't worth it.  

No disagreement with prior responses, but there is another important consideration.  If you estimated 15-20K, but your actual time was 12K (and that's what you invoice), then you may need (proactively) to explain why your actual is outside your estimated range.  This is not always the case, but a competent consultant will anticipate such questions in the client relationship AND consider whether this has an impact on any future fees.

A good consultant will always be considering the viewpoint on the other side of the relationship.

3 hours ago, david rigby said:

No disagreement with prior responses, but there is another important consideration.  If you estimated 15-20K, but your actual time was 12K (and that's what you invoice), then you may need (proactively) to explain why your actual is outside your estimated range.  This is not always the case, but a competent consultant will anticipate such questions in the client relationship AND consider whether this has an impact on any future fees.

A good consultant will always be considering the viewpoint on the other side of the relationship.

Probably a good idea to explain why invoice is less than estimated range.  Then if future invoices are "within range", may make more sense to client.  Then especially if additional work is done and invoice is more than the estimated range, the explanations may be more easily accepted.