Alternative fee arrangements differ from hours-based fees in that the expenses are organized around the key issues of the matter and the values delivered by the legal services addressing that matter.
Of the many changing tides in business, technology’s effect on the time it takes to complete tasks is one of the most influential. Document assembly software, as well as content-generating AI programs, many of which are free, can reduce the number of hours it takes an attorney to complete tasks. “Lawyers who are judged by the number of hours billed are not rewarded for dealing with matters more efficiently or bringing special skills, or creative outcomes to the client’s matter” says Jane Reardon from 2Civility.org.
Another change driving firms to invest in alternative fee arrangements are the needs clients are bringing to our office. For example, should a large hospital system need support in conforming all IT contracts across its campuses, a flat fee arrangement may contribute more value than hourly billing would.
While each situation is different, alternative fee arrangements come in some common shapes. Some of them feature a risk sharing element in which the client and the firm share the risks of outcome, and others are characterized by fixed outcomes. Each type has benefits and exposures, which clients and firms weigh as they make fee arrangements.
- Success Fees: determined by a collaboration between attorney and client, the success of a case (examples include: early resolution, or reaching settlement below a set dollar measure) determine the metrics for specific rewards or risks.
- Hard Cap: while fees are still billed at an hourly rate agreed to by the client and the firm, the client understands that the fee will not rise above the budgetary barrier.
- Contingent Fees: in this arrangement, a percentage of the client’s recovery is the fee gathered by the firm.
- Holdback: the client holds back an agreed upon percentage of the cost of representation. Then, at discrete stages of the case, or when certain performance metrics are reached, held-back fees are paid to the firm.
- Blended Rates: especially in complex litigation or layered transactions multiple attorneys work on a case. This arrangement removes the swing between the variable hourly rates of those working on the file in favor of a single standard rate for the whole matter.
- Flat, or Fixed, Fees: are in practice what the name says. At the outset of representation, client and lawyer agree to a set cost. This arrangement affords the client a predictable bill.
While determining the cost of services by billable hours is the most recognizable method, it is not always the most beneficial. Sometimes referred to as “value-based billing”, begin exploring alternative fee arrangements by talking with your attorney about whether any of these alternative arrangements make sense for your matter.
For guidance on retaining legal representation for your matter, contact us.