Innovative Client Practices for the Legal Profession – Flexible Legal Fees

Perhaps one of the most interesting legal trends of the last few years has been the rise of firms offering flexible legal fees or alternative fee arrangements. The American Bar Association recently discussed how cost-control efforts from the economic downturn of 2008-2010 led both law firms and legal departments to become more creative with offering and evaluating alternative fee arrangements. As the economy gradually strengthens, this legal trend has remained prevalent.

This post is Part 2 in a series of excerpts from Future Law Office: The Evolving Legal Profession and Emerging Workforce of Tomorrow, Robert Half Legal’s annual research project about emerging legal trends.

To earn new business and keep existing clients satisfied, law firms need to clearly demonstrate the value they provide to their clients and offer more flexible legal fees and innovative services. As corporate legal departments react to the same pressures to control costs that all areas of their companies face, small and midsize law firms that can offer clients lower bill rates are in a unique position to capture new business that traditionally might have been assigned to larger law firms.

Scott A. Carlson, a partner at Seyfarth Shaw LLP’s Chicago office and the chair of the firm’s e-discovery and information governance practice, explains, “The economic downturn motivated lawyers and law firms to come up with more thoughtful fee arrangements. Our firm is culturally more open now to entertaining different arrangements than traditional ones. We are not merely looking at fixed fees, but finding creative partnerships. In the past, there would have been more ‘angst’ in the firm. Fundamentally, we ask our clients what they want and we find a way to make it work for both of us.”

Acknowledging that corporate legal departments are working with limited budgets and are being asked to justify all legal expenses is often a critical first step to winning new business from these clients. Lise Patry, vice president, legal and corporate secretary of the Canadian Air Transport Security Authority, says, “If a law firm is sensitive to our resource constraints, and also is responsive and accessible, that’s the type of firm I’m going to choose to work with.”

To provide predictable pricing and work within clients’ budgets, firms are negotiating fixed or flat fees for a wide range of matters and services, from complex or simple to short-term or ongoing projects. Sometimes, a mix of hourly billing and set fees is arranged. But offering flexible legal fees does not need to undermine a law firm’s profitability, notes Michael R. Rizzo, partner and government contracts department chair for McKenna Long & Aldridge LLP, in Los Angeles. “Law firms that can price work appropriately on a fixed-fee basis, and manage that work very efficiently, have the opportunity to make a profit while also satisfying their clients’ need to keep expenses at a known level,” he says.

Finding ways to avoid prolonged litigation also is important in this new landscape. In fact, law firms can earn success fees – essentially, outcome-based performance bonuses – from their clients without even having to enter the courtroom. “Resolving matters early allows our clients to avoid the uncertainty and risk associated with outstanding litigation,” explains Audra A. Dial, a partner at the Atlanta office of Kilpatrick Townsend & Stockton LLP and an attorney with the firm’s patent litigation and technology litigation team. “I find we’re doing a lot more work with early case assessment now, and trying to develop creative fee proposals, like success fees, that are a win-win for our firm and our clients.”

Alternative fee arrangements are often more feasible with existing clients than new ones. With the former, the law firm typically has a better understanding of the client’s business, its prospects and its risks, as well as an educated perception of the client’s willingness to strike a reasonable balance between its interests and those of outside counsel, notes James R. Ukropina, of counsel at O’Melveny & Myers LLP. “In the case of a new client, evaluating these issues can be more of a ‘blind alley,’” he says.

In this environment, it’s critical for competing firms to streamline and enhance their service offerings and approaches while still offering exemplary legal counsel. With price pressures prevailing, flexible legal fees are essential and will remain a priority in the years ahead.

Join our conversation about this and other legal trends. How has offering alternative fee arrangements worked for you and your firm or department?