What started with a whisper has become a clarion call. In-house counsel are looking for law firms to be creative, flexible and predictable in billing for legal services. The recession was the initial impetus for companies to ask outside counsel to move away from the traditional billable hour, and find ways to reduce legal costs and make legal expenses more predictable. Now that the economy has recovered, companies have realized the benefits of flexible billing arrangements and are continuing to demand something other than just billable hours paid at outside counsel’s full rate. Law firms seem to finally be catching on … The Washington Post (Apr. 11, 2014) recently reported that in 2009, 28% of law firm leaders believed that non-hourly billing would be a permanent change in the legal industry. By 2013, that figure has jumped to 80%.
These billing structures, often called “alternative fee arrangements” or “alternative billing arrangements” include flat fees, retainers, reduced rates, blended rates, success fees and bonuses. In our practice, which is primarily representing large corporations as plaintiffs, we have developed alternative billing arrangements based on a combination of reduced rates, capped fees and expenses, and contingency. At the beginning of each case, we discuss the scope of our engagement with outside counsel. Creativity and flexibility are key – even with the same client, we analyze each individual case with the client to determine the best fee arrangement for that specific case. Sometimes the fee arrangement will change during the course of the case. For example, a fee arrangement with a higher billable rate and smaller contingency during the pre-litigation stage of a case, may need to shift to a reduced and capped billable rate with a higher contingency component if the case goes to litigation. These issues can be arranged at the start of a matter, or during the course of the matter as in-house counsel appreciate the flexibility to change the fee structure as the case warrants.
As more large and small companies realize the benefits of these alternative fee arrangements, the call for flexibility and creativity is becoming stronger. The Wall Street Journal reported on this trend citing a survey of managing partners at 40 large U.S. firms, which found that 13.4 percent of the firms’ revenue came from alternative arrangements in 2012, nearly double what it was in 2008. For smaller boutique firms, the trend is likely to be higher, especially for those firms like ours who represent companies as plaintiffs. Clients appreciate the effort to work together as a team to create a billing arrangement that is mutually beneficial.