Alternative Fees (Part 13) – Why has change been so slow?

Throughout this series, I’ve been writing about the ways that alternative fees can save clients money and help lawyers build stronger relationships with their clients.

 

The panelists on my recent West Legal Edcenter webcast on alternative fees at large firms are among the best known proponents of this approach. But when they talked about the speed of change, their views ranged from guarded to discouraged.

 

Harry Trueheart noted that at Nixon Peabody “We got involved in alternative fees more than two decades ago.  When people started talking about this, we got out in front.  We wanted to go with the flow and not resist.  But the flow was not as strong as we expected.”

 

Similarly, Fred Bartlit reported that when he left Kirkland & Ellis to found Bartlit & Beck 16 years ago, he thought that once the benefits became known, change would come quickly.  It didn’t.

 

Other experts have offered similar observations.  Last November, Law.com interviewed Susan Hackett, general counsel of the Association of Corporate Counsel, about the progress the ACC Value Challenge was making in promoting alternative fees.  According to Hackett, “Lots of clients' lips are moving, but their feet aren't moving.”

 

On the West panel, Richard Rosenblatt reported that at Morgan Lewis,  “We are pursuing alternative billing very aggressively.  We offer a veritable smorgasbord of billing options, and we believe that virtually all matters can be structured with alternative fees.  The biggest challenge is that clients are nervous about entering new territory.  They always ask, ‘Will this cost me more or less than hourly billing?’”

 

Of course that’s a perfectly reasonable question for a client to ask, and Morgan Lewis has devised several ways of minimizing the risk for both sides.  Some of their fixed fee arrangements include “risk collars” which compare the fixed fee to the actual hourly expenses.  In one example, “If the hourly expense is less than the fixed price, we offer a rebate.  If it’s more than 20% over, the client gets the first 20% free, but might pay half of whatever is over 20%.”

 

According to Rob Fields of Womble Carlyle, fees “must be transparent so the client can see that they won and they can defend the cost to their business people.”

 

Unfortunately, in some cases it can be very hard to prove that fixed fees lead to lower costs than hourly rates.  For example, alternative fees sometimes represent a paradigm shift in which clients are more likely to avoid legal problems by seeking early advice.  But how could you prove that problems were avoided and money saved?  Ultimately, fixed fee arrangements must be built on a foundation of trust, and trust is not the long suit for many lawyers.

 

Fields reports that at Womble Carlyle the deals that have worked out the best are the ones that were client-driven.  “It doesn’t mean the client has to come with the nuts and bolts of how this works.  The law firm may have those answers, but the client has to bring to us a clear idea of what they expect to achieve.”   

 

Although progress may be slower than some would hope, all panelists believe this is the wave of the future.  As Fields summed it up, “Alternative fees are necessary, a good thing, and inevitable.”

 

For a summary of this series and more, see the second edition of the free LegalBizDev Guide to Alternative Fees, in the Alternative Fees section of our web page.  The third edition will be released in July.