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Alternative fee arrangements are “in” again. Some say they are a temporary trend and the billable hour will reign supreme once the economy improves. It is more likely alternative billing is here to stay for two reasons. First, alternative fee arrangements never disappeared after they last were in vogue in the 1990s, but they did stop getting press because the biggest law firms were grabbing headlines by commanding top dollar for hourly billing. Second, today’s in-house counsel find a lot to like about alternative fee arrangements and will be reluctant to abandon them in the future.

GUIDING PRINCIPLES

Trust, fairness and transparency — if a fee proposal has these three features, it is likely to succeed. The attorney-client relationship requires a foundation built on trust. This is as true in the billing arena as it is when it comes to devising strategy regarding the merits of a case. Moreover, in any complex and ongoing business relationship, both sides must feel the deal is fair, or the relationship will not last. The key to building a fair and trusting relationship is transparency. A transparent billing relationship allows you and your client to see how fees are generated and risks are shared. In this scenario, neither party is likely to regret making the deal.

When structuring a fee arrangement for a new matter, the first and most important thing to do is determine what matters most to your client with respect to the particular case or transaction. Then, tie a risk and a reward to the client’s top priority. If the client cares most about prevailing on the merits, use some version of contingency billing to tie your reward to the result. On the other hand, if the client places the greatest value on getting an early settlement, tie your reward to that achievement by, for example, reducing a pre-set bonus every month the case remains unresolved. Or, if your client’s top priority is the efficient processing of a series of cases, tie the reward to keeping the average fees-per-matter within the client’s budget.

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