When the review letter arrived
A fixed fee that covered preparing the claim, and review help that turned out to be extra, at hourly rates with no budget, when a medical device company's claim was reviewed: what the engagement letter should have said, and what the help cost.
Illustrative case study. The business, people and figures are invented to show how a situation can unfold. Any resemblance to a real business or adviser is unintended.
The situation
A medical device company with about 50 staff had claimed for three years with the same adviser on a fixed fee of $35,000 a year. The fee covered preparing the claim: the technical case, the figures and the forms. The proposal had said that audit support was "available". The claim under review was $250,000. Illustrative figures.
What was signed
The engagement letter set out what the fixed fee covered, and it did not cover a review. A separate sentence said that the adviser would "assist with any enquiry from the tax authority at our standard hourly rates". No rate was stated in the letter; the rates were in a schedule the company had not kept. There was no estimate and no cap.
What happened
The review letter arrived with a deadline. The company called the adviser, who was helpful and prompt, and who confirmed that the work would be charged at $250 an hour. The review ran for eight months and took 120 hours of the adviser's time, $30,000, and then a further 60 hours when the tax authority asked a second round of questions, $45,000 in all. The claim was upheld in full. The company had paid $35,000 for the claim and $45,000 to defend it. Illustrative figures.
What it cost
$45,000 of hourly fees that the company had understood, from the word "available", to be part of the service, plus its own time. The claim itself was sound, and the fixed fee had been a fair price for preparing it; the engagement letter simply did not say what help with a review cost. A percentage fee with the same sentence in the letter would have led to the same bill. Illustrative figures.
How it unfolded
- The engagementThree years on a fixed fee of $35,000 a year for preparing the claim. The proposal says audit support is available; the letter says help with an enquiry is charged at standard hourly rates.
- The review letterA deadline, a call to the adviser, and a confirmed rate of $250 an hour with no estimate and no cap.
- Eight months120 hours of help, then a second round of questions and 60 hours more. The claim is upheld in full.
- AfterwardsThe company asks for review support to be written into the next letter, with a scope and a ceiling.
Illustrative figures.
The sum
Illustrative- Fixed fee for preparing the claimThe claim itself: $250,000
- $35,000
- Review help, 120 hours at $250Hourly, no estimate, no cap
- $30,000
- Review help after the second round, 180 hours in allA 60 hour overrun
- $45,000
- Claim upheldThe claim was sound; the letter was silent on what help cost
- $250,000
Illustrative figures. Same claim and assumptions as the rest of the site.
What would have helped
The question is review support included?, answered in writing with a scope, a duration and a price, whatever the fee model. The review and audit support clause page, which shows the difference between "available" and "included", and between an hourly rate with a budget and one without. If support had been priced separately, that could have been a fair choice. The company needed to know it when it compared proposals, and the hourly work needed an estimate and a ceiling. The review support costs extra red flag page says when a separate price is a problem and when it is not. The companies under review page covers what to ask when the letter arrives.
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