Alternative Fee Arrangements Effective & Efficient

The Hillsborough County Bar Association
Tampa, Florida | November 2010
VOL. 21, NO. 2

Corporate Counsel Section

Chairs: Nicole D. Strothman, Ideal Image Development Inc.; Stanley K. Kinnett, Brown & Brown; and A. Courtney Cox, WeHoare Health Plans Inc.

Often times a disconnect exists between lawyers and clients regarding the value of legal services provided. These disconnects have been exacerbated in recent yeras by the struggling economy and a failure by many law firms to adjust their business practices. For example, some law firms have continued to impose annual hourly rate increases.

The appropriate response of many corporate legal departments has been to demand a reduction in hourly rates and to aggressively manage Performance. There is also an increased interest in alternative fee structures, but some law firms and clients remain hesitant.

Corporate legal departments can and should demand that outside counsel be open to alternative fee arrangements.

Corporate legal departments can and should demand that outside counsel be open to alternative fee arrangements. Not every legal service is susceptible to a non-hourly arrangement, but many are. Traditionally, there are two alternative fee arrangements: falt fee and contingency.

Flat fee arrangements work best in scenarios where the client and lawyer agree on a price for a specific deliverable. In the litigation context, the specific deliverable could be preparing the complaint, taking a deposition, or handling the litigation through trail. Applying a flat fee to certain tasks or phrases of the litigation not only caps the Client’s invoice, it requires the lawyer and client to perform a value-based analysis of the work being requested or recommended so a decision can be made-in advance- whether the proposed strategy makes economic sense.

The traditional contingency model, in contrast, is one where the lawyer gets paid only upon successful recovery. Nearly any claim that seeks money from a financially solvent defendant can be pitched to outside counsel on a contingency basis. However, there are hybrid forms that often times work best in the commercial litigation context.

Corporate Legal Departments can and should demand that outside counsel be open to alternative fee arrangementsFor example, if the litigation will likely consume years and hundreds of thousands of dollars in costs, one hybrid structure is for the law firm to accept reduced hourly rates or a flat fee, the client pays cost, and there is a percentage-based “success fee” upon recovery.

In cases where the client is the defendant rather than the plaintiff, one hybrid structure is for the law firm to accept reduced hourly rates or a flat fee with the law firm earning a “Success fee” based up on a range of outcomes, from a favorable summary judgement or verdict to an adverse verdict or settlement below an established threshold.

The Fundamental purpose of alternative fee arrangements is to save the client money. Desirable consequences include better alignment of the interests of client and lawyer and more effective utilization of resources. Law firms that are interested in establishing long-term and mutually beneficial relationships with their clients will be excited to discuss the opportunity to try alternative fee arrangements.