Legal Fees: Moving Beyond The Hourly Rate

July 2013

Like companies across almost every business segment, law firms have struggled financially since 2008. While their costs, (i.e., professional salaries, rent, staff, pension obligations) are typically fixed, revenues have declined. Competition is intense; there are many capable and hungry lawyers available. At the same time, partner compensation and benefits are being scrutinized more closely to determine whether they correspond with production. The gap creates an opportunity, as attorneys are more willing to move beyond traditional hourly billing plans in an effort to be more flexible and gain business.

In the current business climate, at the beginning of an engagement, business owners and outside attorneys can arrive at a mutually advantageous plan that gives the client some reasonable assurances against excess fees, while offering the attorney some downside protection against being undercompensated based on the resources they will be expending. A sound plan dictates that lawyers will have "skin in the game" based on the plan—some upside in the case of victory or downside in the case of failure.

For example, the client might establish a monthly retainer to be deposited in the attorney's client trust account and credited toward invoices generated. If one of the measurable and defined victories is achieved, then the law firm might be paid, say, 150 percent of its normal blended hourly rate for every hour spent working toward achieving that particular victory above the initial retainer. If, however, the attorney fails to achieve that defined victory, then it will be paid a lower hourly rate for that work, (e.g., 50 percent of its normal blended hourly rate), for the work spent on that project.

Sources: "How to Save on Legal Costs," CFO.com