December 03, 2012 Articles

Avoiding the Pitfalls of Alternative Billing Arrangements

While the hourly rate is a known quantity for law firms, alternative fee arrangements can be fraught with peril.

By Betsy P. Collins

As a litigator for almost three decades, I've seen a lot of changes in the practice of law. From the defense-lawyer perspective we've moved from the kind of relationships with clients where there is loyalty and consistency, to relationships characterized by one-off representations that leave lawyers angling for everyone else's clients and clients angling for the best deal. The cost of litigation, particularly with regard to electronically stored information and e-discovery, has driven up the average nuisance value of cases. Fewer and fewer cases actually make it through the pipeline to trial. Additionally, with outsourcing models, clients are shifting costs of tasks such as document review and production out of defense firms. Law schools continue to pump out more lawyers. In short, competition is keener than ever. Corporate clients want predictability and cost control, which is causing lawyers to turn to more creative ways to appeal to clients' inclination toward bargain-shopping.

Over the last 25–30 years, the hourly rate has reigned supreme in the representation of corporate clients in litigation. In the last few years, there has been growing disagreement about whether the hourly rate produces the value corporate clients want. While the hourly rate is a known quantity for law firms, alternative fee arrangements can be fraught with peril. If you are negotiating alternative fee arrangements, knowing how to spot the pitfalls and how to avoid them is critical to your firm’s financial well-being. If you are a young lawyer, understanding how alternative fee arrangements work can help you cement your relationship with the relationship partner and the client.

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