Paying your lawyer by the hour makes sense in almost all situations. I started my career at an old New Orleans law firm and just about all the work I did there was billed hourly. I believe in that system, but because I don’t have the same type of overhead big firms do, I can afford to be a lot more creative about billing than they can.
One of my goals is to add value to my services and I can do this by taking a step back and viewing our relationship from a more holistic perspective. Managing my clients’ budgets and improving the predictability of what they spend on their lawyer is a priority to me. I frequently work with clients to develop flexible alternative fee arrangements (AFAs) – compensation options that offer choices beyond the billable hour model and often involve sharing both risks and rewards with our clients. I start early with clients to facilitate this process and determine which potential AFAs will best achieve their business and legal objectives. Sometimes that means very narrowly tailoring a written agreement so a client views litigation or business advice in stages.
AFAs are good for my practice, too, because they help reduce inefficiencies; they almost always increase productivity and they without exception improve the way I deliver legal services. By working with my clients to define our shared idea of what “success” means from day one, I’m able to focus on results and outcomes that add value.
Options are tailored to meet the needs of the specific client, based on the type and volume of the work. Some AFAs might be:
- Fixed or flat fees, which often can be set on matters for which my time is relatively predictable; sometimes these fees can be developed based on stages of a matter or case and offer success-based incentives.
- Volume discounts/discounted fees, which are most appropriate for repeat work of the same general type where efficiencies can be achieved for my clients.
- Risk/reward fee arrangements, which involve a shared risk/reward agreement that provides an added financial incentive for me to stay within the agreed-upon budget, and shared financial consequences for both parties when I exceed budget.
- “Skin in the game” type hybrid hourly/contingency fee arrangements where I’m paid a reduced hourly rate, but accept an “upside” on contingency; this might mean that a matter normally billed at $275.00 would be billed at $100 hourly, and I’d take a % of recovery if the representation is successful
- Fee caps mean that specific work will be performed for no more than a fixed amount. If a matter is completed for less than the cap, the client is billed only for the actual time spent on the matter, not the cap.
- “Collars,” in which a budget limit is set. In a “collar up” agreement, if that limit is reached, the client won’t be charged for additional work until a certain amount above the limit (or “collar”) is reached. At that point the client would be charged a certain percentage of the amount over the limit. A “collar down” agreement is similar but provides percentage rewards for coming in under the budget limit.
- Equity interest in the client is another AFA that attorneys I’m beginning to explore. Consideration of this AFA is rare and will not be attractive to me unless I envision a long-term relationship with the client.
One of the greatest opportunities that we as lawyers have is the ability to work with creative businesspeople. I work for great clients and I give them great services; I’m never worried about the value I’ll get in return, and sometimes I’m surprised by what my clients offer me that far exceeds customary hourly rates.