September 16, 2019 Practice Management

TAPAs: Alternative Fee Arrangements

By Jeffrey Allen and Ashley Hallene

Alternative fee arrangements (AFAs) are designed to make your services more accessible to low and moderate-income clients. Examples of alternative fee arrangements include fixed or flat fees, contingency fees, and fee-shifting. There are pros and cons to every arrangement, but if you have decided to set up such a program in your law office, here are some tips to help.

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Tip 1: Consider Fee Caps as a Billable Hour–Alternative Fee Hybrid Arrangement

With fee caps, hourly billing is capped at an agreed-upon maximum for a given case, project, or service. While this arrangement is a nice way to ease into AFAs, it is not without risk. Let’s say you agree on a $1 million fee cap, and the work ends up costing you $2 million. The client will expect you to honor the arrangement, even if it bankrupts the firm. This tends to benefit the client more than your firm, but it is a nice way to set yourself apart from other firms.

Tip 2: Holdback Fee Arrangements Serve as a Modified Contingency Fee

A holdback is a type of partial contingency fee arrangement. The law firm will typically receive a guaranteed part of its fees (maybe 80 percent) while the remainder will be contingent on the case’s success. Sometimes this arrangement is combined with a success fee that provides a bonus for a positive result. This arrangement has the benefit of better alignment of the interests of the client and the law firm. There is risk, however: If you do not clearly define expectations and the metrics for success up front, it could lead to conflict over whether the holdback or success bonus has been earned.

Tip 3: Fixed Fees for Single Engagements

This arrangement calls for firms to set a hard price on several well-defined services. With this AFA, a single fee is agreed to for either the entire matter, each distinct phase of a matter (e.g., discovery, summary judgment motions, trial, etc.), or each distinct task or unit (e.g., deposition, motion, expert, etc.). This arrangement carries the risk that a matter will be much faster and simpler than expected (benefiting the lawyer), or significantly more complex and time-consuming then anticipated (benefiting the client). Fixed fees will not be right for every case. It will work better when a client has a large number of similar, but separate, matters.

Tip 4: Sliding-Rate Fee Arrangements

This law firm pricing model is based on a client’s ability to pay, which is often determined by income and/or family size as taken from the Federal Poverty Guidelines. This means that what clients pay, whether hourly or as a flat rate, will be determined by their income, rather than you just charging your typical rate. This allows those with lower incomes to pay a lower fee, giving them greater access to otherwise out-of-reach attorneys.

Tip 5: Subscription Alternative Fee Arrangements

Under a legal subscription plan you make your services or a bundle of services available for a fixed price on a recurring basis. It’s like Netflix, but for legal services. Having legal subscription plans can create a steady stream of revenue for your law firm and help clients help themselves. It works well for small business clients, giving them control over some of their routine legal tasks, while giving you a steady stream of income. The key to creating legal subscription plans is to break your work down into individual legal products. Think of ways you can turn your services into products. For example, you could have a set of online forms with instructions that clients can purchase at a flat rate for certain things, like setting up a business entity. If you are feeling really tech savvy, you can automate the entire process for clients so the drafting work is done automatically for them.

The key to any alternative fee arrangement is open and transparent communication with your client. AFAs can appear in some form or fashion in all practice areas, and for many matters they offer a better value for clients. These arrangements are good for you as a lawyer, too. They can help you to distinguish yourself in the market, open up client opportunities, and allow you to focus on providing client value rather than on the amount of time you are billing.

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Jeffrey Allen is the principal in the Graves & Allen law firm in Oakland, California, where he has practiced since 1973. He is active in the American Bar Association (particularly in the GPSolo and Senior Lawyers Divisions), the California State Bar Association, and the Alameda County Bar Association. He is Editor-in-Chief Emeritus and Senior Technology Editor of GPSolo magazine and the GPSolo eReport and continues to serve as a member of both magazines’ Editorial Boards. He also serves as an editor and the technology columnist for Experience magazine. A frequent speaker on technology topics, he is a former member of the ABA Standing Committee on Information Technology and the Board of Editors of the ABA Journal. Recently, he coauthored (with Ashley Hallene) Technology Solutions for Today’s Lawyer and iPad for Lawyers: The Tools You Need at Your Fingertips. In addition to being licensed as an attorney in California, he has been admitted as a Solicitor of the Supreme Court of England and Wales. He is on the faculty of California State University of the East Bay. He may be reached at jallenlawtek@aol.com.

Ashley Hallene is a petroleum landman at Macpherson Energy Company in Bakersfield, California. Ashley is Editor-in-Chief of the GPSolo eReport and is the coauthor of the technology overview Making Technology Work for You (A Guide for Solo and Small Firm Attorneys) along with attorney Jeffrey Allen. She has published articles on legal technology in GPSolo magazine, GPSolo eReport, and the TechnoLawyer Newsletter. Ashley is an active member of the American Bar Association’s General Practice Solo & Small Firm Division, ABA’s Young Lawyers Division, and the Bakersfield Association of Petroleum Landmen. She frequently speaks in technology CLEs. She may be reached at ahallene@hallenelaw.com.