Litigation Fees Can Eat Away at Emergency Money
Litigation can eliminate emergency money funds quickly. Recently there has been some criticism of using “billable hours” as a means of paying for legal services. Because of the struggling economy, many firms are reassessing the old way of using billable hours for compensation and scrutinizing its ability to incentivize attorneys to resolve legal issues efficiently.
The old model of legal service billing
Charles Rodgers, business analyst in Chicago, said, “The old model of attorneys submitting itemized lists of hours spent fixing problems is outdated because clients know that there is padding. Who needs 15 minutes to leave a voicemail for a defendant in a case? Clients are questioning practices.” In addition, attorneys are seeing the problem and confirming that they are more than willing to devise alternative billing methods. Rodgers added, “Alternative billing arrangements will remain a valuable tool for companies looking to reduce legal costs and gain cost certainty without sacrificing results.” (http://www.entrepreneur.com/management/legalcenter/legalcolumnistmichaeljlotito/article204584.html)
How to value legal services
The question remains: How do you effectively value legal services? This has proven to be a big challenge for attorneys and clients. Lawyers don’t want to be undervalued or underpaid for the actual time it takes to complete a project, and clients don’t want to work with fixed-prices that are then performed by less experienced legal assistants. The problem is difficult, but it has created a good amount of dialogue on the issue and more options are entering the market.
One industry that has managed the topic well is the field of labor and employment law. The reason this sector of law can estimate a flat-fee is because legal matters are relatively predictable and efficient lawyers can normally handle things like wage, hours, benefits and disability discrimination law with the same project management outline. It makes the time needed easily estimated and in turn, the fees close in range.
The alternative fee structure
Alternative fee structures can be endlessly created, but some examples of the kinds that are gaining popularity in the market are:
- The flat of capped fee for specific projects. This is the most common way to bill in today’s market. Clients were vocal about their fear that attorneys would up their hours and take advantage of them. Emergency money was quickly used up in the old model of billing. Now, clients and attorneys are working together to create flat fees for various litigation tasks such as drafting letters, contacting defendants, appearing in court and reviewing documents. Under this type of arrangement, the client pays a certain amount regardless of actual hourly billings. If billings are below the capped amount, the client keeps the money. It’s a great way for clients to understand the fees up front and know how much they are going to have to invest in litigation.
- National employment counsel models. According to Rodgers, “Under this model, one firm handles all single-plaintiff litigation and other matters in a specific region for a predetermined yearly flat fee. Single-provider relationships can provide tremendous value to corporate clients because attorneys become increasingly efficient as they gain knowledge about the company and its practices.” This is a great way to forge a long-term relationship between an attorney and corporate client. (http://www.entrepreneur.com/management/legalcenter/legalcolumnistmichaeljlotito/article204584.html)
- Results-based fees. This is one of the most common ways of billing in today’s market. This model is designed to incentivize attorneys to work their best at solving intricate legal issues. Things like winning a motion or setting a case before expected are things that would trigger a result bonus. It’s a great way of paying for quality.
Working together for solutions
In today’s post-recessionary economy, clients are more concerned with building up emergency money funds than paying high legal costs. The bottom line is that the old model of paying for billable hours is no longer a viable option with clients. By working together to create a more feasible pay structure, attorneys and clients alike can walk away more satisfied and with better results.