Alternative Fee Arrangements for Litigators

As business clients try to control legal costs, the traditional billable hour has come under attack. Some clients object to agreeing in advance to pay an hourly rate for an unknown quantity of work. They rightly observe that the billable hour rewards lawyers for inefficiency, overlawyering, and dragging out a case.

In transactional matters, attorneys can offer these clients fixed fees. But in litigation, it’s trickier. No one can predict what opposing counsel might do, or how a judge might rule. And its these factors that largely determine the cost of litigation.

Some lawyers and clients, however, are taking a creative approach. They are devising fee arrangements that give litigators a greater stake in the outcome.

Contingency fees are the most common alternative fee arrangement for litigation, and they have long been the standard for personal injury cases. The lawyer’s fee is based on a percentage of any ultimate recovery, with the percentage usually increasing if the case goes to trial. Clients are typically responsible for litigation costs.

A contingency fee might be appropriate for a law firm representing a plaintiff in a business litigation matter, particularly if the client lacks the money to pay legal fees up front.

Partial contingency fees: In a partial contingency case, the law firm charges a reduced hourly rate and receives a reduced percentage of any eventual recovery. This sort of arrangement is useful for a plaintiff who has a limited litigation budget but can afford some monthly expenditure.

Fixed fees: It’s true that litigation is unpredictable, but some litigators are successfully using fixed fees, particularly for small or routine matters that are similar to past litigation. It’s helpful if the firm’s litigators have enough experience to predict what the representation is likely to require. In addition, fixed fees work best if the fee agreement clearly defines the scope of the work. Sometimes firms charge an additional hourly rate if something unexpected causes the representation to exceed the original scope.

Capped fees retain the usual hourly billing structure, but the law firm agrees that its fees will not exceed a certain amount. Unlike traditional billing that encourages firms to bill as much as they can, capped fees give them an incentive to be efficient.

Phased billing can be used in either a fixed fee or capped fee situation. The law firm provides a detailed budget and estimate of expenditures for the first phase of the case, and a rougher estimate for later phases. At the end of the first phase, the firm makes a more concrete and detailed budget for the next phase, and so on.

Success fees: In this type of fee arrangement, the law firm is paid a portion of its fee up front or on a monthly basis. The remainder of the fee is held back, and the firm receives an agreed-upon multiple of the held-back fee if the firm achieves a positive result. A success fee might be appropriate for a defendant in a lawsuit.

Alternative fees can work for litigation, but they require a careful case assessment and enough experience to predict both the amount of work required and the chances of success. By offering alternative fee arrangements, litigators can represent clients who otherwise couldn’t afford a lawyer, and they can help traditional hourly clients better manage their legal costs.