June/July 2010 / Features
Alternative Fee Arrangements in Litigation
The economic downturn has accelerated the development of alternative arrangements for legal fees. Clients want to contain costs and make them predictable. Firms need to assure their own profitability, and retain client relationships. Much of the energy behind the alternative fee movement comes from the fact that it shifts risk for cost overruns and fee uncertainty from the client to the firm. This requires the firm to effectively manage staffing of its engagements.
The author provides examples of alternative fee arrangements for hypothetical matters of litigation. Monthly flat fee billing is useful when the firm has been handling suits for a client and knows how long it takes cases to settle on average, and what the likely figure will be. Payment of a monthly sum for the life of the case is negotiated. Another method of handling a docket of similar cases is fixed-fee phased billing. The litigation is broken down into phases. A fee for each is agreed upon, often with the caveat that cases involving extraordinary circumstances will be billed outside the fixed-fee parameters.
Other common alternative fee arrangements are work-sharing between high priced national firms and moderately priced regional firms, and blended rate agreements in which firms take cases at a reduced rate for the opportunity to earn a percentage of recovery.