I previously posted about whether alternative fee agreements(“AFA”) are attractive. I do think the legal industry will evolve in that direction as corporate law departments demand greater cost savings and certainty in legal fees. This same rationale applies to individual business owners who cannot withstand an onslaught work based on hourly fees.
What type of AFA’s make sense to provide clients with certainty in legal expenses and avoid the cost of a “blank check book” on hourly rates? There are a host of potential AFA’s available to creative lawyers and their clients.
The best known AFA is a traditional contingency fee. Big firm lawyers are notoriously bad at these because they have been raised in the billable hour world that rewards inefficiency. However, if cases are carefully vetted and staffed in an efficient manner, law firms and clients can benefit form this. Typically, because of the potential risk it pays to have several of these to have wins offset losses. The more hooks in the water, the better.
A second AFA is a hybrid of hourly rates and a contingency fee. This involves reduced hourly rates but at the end of the case there is an incentive payment based on a percentage of the recovery or a success fee for money saved in defense of the case.
Reverse contingency fees are sometimes used by resolution counsel in major cases. Resolution counsel are brought in to settle cases and are not active in the actual litigation. Resolution counsel’s only role is to settle the case. They are sometimes paid with a percentage of the amount saved in settlement payments or at a reduced hourly rate with a premium rate paid on the back end.
In cases where the amount of work is somewhat predictable, a flat fee can be charged on a per case basis. Flat fees can also be used to pay for a volume of recurring work and paid on a monthly basis. These arrangements require trust and communication between lawyers and client. The goal is economic certainty and a win-win for the client and lawyer. Frequently, these flat fees are based on a “look back” at work done in earlier time periods of several months or a few years.
Fee caps can also be used when the amount in controversy is limited and known. It makes no sense for a business to spend the amount at issue in fee and lawyers need to recognize this reality.
The terms of AFA’s are limited only by the imagination of the lawyer and the client. by creating win-win situations clients will be happier and lawyers will provide the best possible service.