Alternative fees (Part 20): How many kinds are there?
When lawyers are just starting to consider alternative fees, one of the first questions they ask is: how many kinds are there?
That’s a logical question, and indeed was one of the first things I asked when I started studying the topic. My researcher and I spent more hours than I would care to admit listing all the types of alternative fee arrangements that have been reported in the past, and studying the taxonomies experts have proposed to classify them.
In terms of the underlying dimensions, depending on who you ask, there are either two types of alternative fees (fixed and contingent) or three (if you also count discounted hourly rates).
Part 5 of this series provides an overview of discounts. The disagreement about whether blended and discounted arrangements should or should not be considered “alternative” can add considerable confusion to an area that is already confusing enough.
For example, when BTI Consulting Group reported a survey of the frequency of alternative billing at the 2008 annual conference of the Legal Marketing Association, the percentage they reported included blended rates. But when Altman Weil published a survey of the same topic in November 2008, they specifically “excluded not only hourly work but also discounted or blended hourly rates.” And, when a third survey was conducted last May (also by Altman Weil), the press release did not mention whether discounts were included or not. Which makes it awfully hard to interpret their conclusion that “the use of alternative billing is nearly universal in law firms.” Does this mean that almost every firm uses fixed and/or contingent fees? Or simply that everyone is offering discounts?
In the AmLaw alternative fees survey we are currently conducting, we went with the strict definition and excluded blended rates and other approaches that are strictly hourly. We focus instead on arrangements that are fixed or contingent, in whole or in part. We explain that definition when we recruit participants, and I mention it again as I begin each interview. Nevertheless, as the conversations continue, a few participants inevitably go back and talk about blended rates, because that’s the way they think about alternative billing.
Unfortunately, some firms have a vested interest in maintaining this confusion. Saying that your firm is offering “alternative billing” sounds much more thoughtful and less desperate than saying: we are slashing our rates because we need the business.
These two underlying dimensions – fixed and contingent – are often combined with each other and/or with hourly rates to form many different types of hybrids. One increasingly common arrangement is the type of cap law.com reported when:
Under its agreement with Pfizer, Jackson Lewis gets any employment-related legal work that comes in the door for...two years, including single-plaintiff discrimination cases, equal employment opportunity matters, class actions, and general advice and counsel. All existing employment cases were transferred to the firm except for [three ongoing matters]. In return, Jackson Lewis is paid one-twelfth of the annual capped fee each month.
But there’s a catch.
Some lawyers see this sort of hard cap as the worst of both worlds: you can do worse than hourly, but you can’t do better. Others accept hard caps as an inevitable element of the changing legal landscape. As Womble Carlyle’s Rob Fields put it in Part 13 of this series, “[fees] must be transparent so the client can see that they won and they can defend the cost to their business people.”
If you wanted to list all the different types of hybrids which combine fixed, contingent and hourly arrangements, how many types would there be? As Pat Lamb explained in my March webcast on alternative fees, when you consider all the combinations and permutations there are “a limitless variety of ways to structure fees.” And even if you were able to somehow create a list of all the fees that had been used in the past, the next day some lawyer somewhere would invent a new one.
To cut through this confusion, some firms are compiling proprietary short lists of the exact details of alternative billing arrangements that best fit their business, and the risks and benefits of each. These living documents will be revised frequently, to summarize what firms learn as their experience grows. We are currently talking to several firms about the best ways to structure these internal guides, including one 700-lawyer firm that has reproduced the entire LegalBizDev Guide to Alternative Fees in their proprietary document.
For a summary of this series, see the free LegalBizDev Guide to Alternative Fees, in the Alternative Fees section of our web page. A substantially revised edition of that Guide will be released on July 29 in connection with our West LegalEdcenter webcast on Alternative Billing: How to Implement Sustainable Programs for the Long Run.
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