A common topic at any conference of lawyers over the past decade has been the alternative fee arrangement that promised predictable legal costs for clients and less onerous timekeeping by lawyers.
But folks at some midsize firms around Atlanta say the idea has never matched the hype.
“Clients tend to revert to the safety and comfort of the billable hour,” said Chris Parker, who runs the Atlanta office of 124-lawyer Miller & Martin. He said the firm uses alternative fees in a range of 5 percent to 35 percent of engagements.
But, he said, paying by the hour makes it easier for clients to compare firms’ performances because they can measure how long similar matters took to be completed.
Also, when projects get more complicated than expected in an alternative fee arrangement, Parker said, “Both sides get a little bit nervous.”
“You end up in this ongoing negotiation of fees,” he added, taking time away from the work at hand and negating the benefits of the initial idea.
Terry Brantley, managing partner of 123-lawyer Swift, Currie, McGhee & Hiers, said the goal for clients with alternative fee arrangements is to achieve certainty in legal billing. As in any effective client relationship, that requires the outside lawyers to understand the client’s definition of success, appetite for litigation and approach to deciding what cases are worth trying or settling.
The client and the firm then may consider various versions of an alternative fee arrangement, such as paying a set amount per 30-day period during a matter or paying specific fees for each stage of a case.
Brantley said he likes a task-based fee system because each potential step in a matter can be priced and considered by the client.
Despite these options, alternative fees have not become the majority of payment plans that he might have expected over the past five or 10 years of discussion. “A substantial number of attorneys looked at [alternative fee arrangements] as flat fee only,” meaning they perceived risks that the client or the law firm would end up with a windfall, depending on how long it took the firm to do the work.
A flat fee is difficult, he added, because the parties need to have a clear sense of the volume of work and whether paying in that fashion would be mutually beneficial.
Michael Trotter, a law firm economics expert and veteran of big law firms at 150-lawyer Taylor English, said, “The hourly rate is still the preferred method of billing.”
Especially because most in-house counsel started at law firms, Trotter said billable hours are easy to use and examine for overwork or inefficiencies. That would lead to a discussion between the in-house counsel and their outside lawyer over a potential change in the bill.
Even though alternative billing hasn’t taken over the industry, it is prevalent. Trotter recalled attending a conference where he met with in-house lawyers from a big company after overseeing an online auction handing out bundles of legal projects to law firms. The in-house lawyers were “giddy,” Trotter recalled, after watched the prices fall during the 15-minute event.
“Whether they were satisfied” with the legal work, Trotter said he doesn’t know.
He said he’s always wanted to work with a client who’d follow a billing method he understands is used in the construction industry. A project is given an estimated cost and, if the law firm completes it for less, it shares some of the savings. If the law firm needs more time to finish, it works at a lower hourly rate for the rest of the project.
“I’ve never had clients go for it,” he said.