The Washington Post reports that law firms and in-house counsel are increasingly using alternative fee arrangements, such as flat fees, for litigation. When the economic downturn prompted corporate clients to scale back their outside legal spending several years ago, law firms responded by experimenting with alternative fees. Alternative fee arrangements can be anything that is not traditional hourly billing, including flat fees, success fees, and contingency fees.
Personal injury and other plaintiff’s litigation cases have used contingency fees for decades. In the past, though, corporate clients typically paid their lawyers by the hour, for both transactional and litigation work. Now, alternative fee arrangements have become fairly popular for transactional work, such as real estate deals. Alternative fee arrangements have been slower to catch on for corporate litigation work, however, because of a perceived uncertainty and unpredictability in litigation.
But now, lawyers and in-house counsel are working out systems, and in some cases software programs, to help them price most litigation scenarios for alternative fee arrangements. They are also negotiating carve outs in case unexpected events change the circumstances of the case.
In corporate litigation cases using alternative fee arrangements, the lawyer and the client typically agree to a payment system at the beginning of a case – often a flat fee with a success fee for certain scenarios, such as if the case is dismissed at an early stage of the lawsuit. The overall payment system is based on estimates of how much the case is likely to cost in total. Or, as in one example in the Washington Post article, the company may pay the law firm a pre-agreed flat fee for each phase of the litigation: investigation, discovery, trial preparation, trial, appeal, etc.
The Washington Post notes that this type of fee system is spreading throughout the legal community. For example, entire practice groups within several large law firms now exclusively use alternative fee arrangements, having completely stopped billing by the hour. The legal community’s perception of alternative fees has also changed: the Washington Post reports that in 2009, 28 percent of firm leaders believed alternative billing would be a permanent change in the legal industry. By 2013, however, 80 percent of firm leaders believed non-hourly billing was here to stay. Similarly, in a recent survey by the Association of Corporate Counsel of 1,200 general counsel, 37 percent of the chief legal officers expect the use of alternative fees to increase while only 4 percent expect it to decrease.
While large law firms are just beginning to adapt to alternative fee arrangements for litigation, small firms have been using them for years. Small firms are often more flexible and are more open to working out unconventional and innovative fee systems to provide clients with the most bang for their buck. In addition to flat fees, success fees, and contingency fees, when it meets the circumstances of the case, Mark Krudys also takes cases with blended fee arrangements, e.g., a low hourly fee blended with a lower percentage contingency fee. If you’re interested in exploring alternative fee arrangements like these for corporate litigation matters, consider working with a small firm to develop a system that specifically matches your needs.