Sky-high legal fees have long been the bane of the attorney-client relationship. Indeed, the fear of high costs often deters businesses from seeking legal counsel even though they would benefit from it. It’s a lot like going to the dentist. Instead of getting annual check-ups, some folks prefer to wait until it hurts. But now, the legal profession’s economic woes may actually benefit clients.
In case you haven’t heard, the legal marketplace has been decimated this past year. The sputtering economy has dried up deals and caused businesses to clamp down on spending. That in turn has spelled disaster for many firms who expanded fast during the go-go years. The hardest hit firms sought mergers and some venerable, old line firms even shuttered their doors for good. Lawyers and staff at surviving firms have been subject to layoffs and pay cuts, while job offers to new law school grads were deferred or revoked altogether.
So where is the silver lining for clients?
It comes in the form of law firms being more receptive and willing to adopt alternate fee arrangements (AFAs). To get your business they have been willing to loosen their grip on the billable hour, the holy grail of legal fees.
What’s significant now, is that AFAs are here to stay. Several recent surveys indicate we’ve reached a tipping point. Their use is on the rise according to a survey of the top 200 U.S. law firms selected by the American Lawyer magazine and a survey of members of the Association of Corporate Counsel (the in-house bar association). More than 40% of the in-house respondents reported an increase of AFAs this year, saying that more than 6% of their total outside counsel spending this year was in the form of AFAs. Similarly, more than half of the law firm heads acknowledged a “fundamental shift” in the market place. I take that to be legalese for “OMG, we have to change.”
These developments don’t mean that the billable hour is dead, only that you, the client, now have more viable pricing options. Another survey, this one conducted by Blickstein Group and InsideCounsel identify the following choices in order of popularity:
- discounted hourly rates
- flat fee by matter stages
- fixed fee per matter
- discount with possible bonus (i.e. success fee)
- contingency fee
- budget-based monthly billing
- “right to call” retainers.
Personally, I’ve been using the flat fee by matter stages for the past 7 years with great success.
What method you works best for you will depend on the nature of the matter (lawsuit, transaction, other counseling, etc.). Even within those categories, legal matters can take unexpected twists and turns and it is that uncertainty that prompts firms to cling to the billable hour model. They don’t want to absorb the excess cost of a miscalculated flat fee while at the same time you, the client, doesn’t want to be unfairly stuck with fees that turn into a bottomless pit because the clock ticks if your lawyer “thinks” about your case while in the shower.
One way to break the logjam is to use data from past files that are reasonably similar to project costs in new files. Such data provides a good starting oint for discussion. Viewing the legal matter as an exercise in project management and incorporating carveouts to address the unexpected ad hoc fire drill aspects is another way to approach the discussion. Either way, it’s all about open and honest communication. The time has never been better to come to the table and lasso legal costs. Take advantage of it today.