In the old days of legal billing, attorneys’ bills, usually a single page on fancy letterhead, contained only the phrase “legal services rendered” and a hefty dollar amount. No time breakdowns, no list of activities performed or equipment and supplies used, just a final charge, usually shocking.
But customer demands and the evolution of sophisticated billing software have led to more detailed bills today. The detailed statements have sparked debates among companies about whether hourly billing is the best way to charge for legal services. As the legal profession becomes more competitive and dependent on high-quality customer service, attorneys must adopt alternative billing methods.
Fixed or flat rates, contingency fees, non-refundable advances with discounted hourly rates, bundled hourly rates, and variations on those themes are becoming more common. But many law firms have been slow to jump on this trend: Attorneys still do about 95 percent of their corporate legal work per hour.
What does that mean for your small business? If your company is currently working with a law firm or seeking legal advice, try requesting alternative billing options. While many law firms rarely initiate different options, they will negotiate when presented. If you want something better than the old “hourly billing” offering, try introducing one of these billing structures:
Project billing for routine issues.
If your legal needs include large but repetitive tasks, consider a flat fee approach, also known as project billing. If you need legal assistance on a large research project that involves multiple repetitive tasks with a fair amount of predictability for cost estimation and time duration, ask for a dollar cap on predetermined services. Be sure to compare the estimated costs to the equivalent hourly rate: a projected cap that far exceeds any likely bill is really no cap.
Once you get a project billing estimate, feel free to shop around. Making an informed decision (shopping around, comparing prices and services with other law firms) makes good business sense, especially if you intend to hire a firm for a single project. If you anticipate establishing a long-term relationship, mention this when you are negotiating the amount of the project: a company may offer a better deal if you expect future work from your company.
Forget the image of personal injury attorneys taking a third of any verdict or settlement. Consider contingency fees instead, fees based on the outcome of the case and the performance of your attorney. Creative use of contingency fees can create efficiencies in even the highest-end corporate settings. If you hire an attorney to help your business avoid litigation, combine a reduced hourly rate with a bonus for successfully reducing your litigation expenses.
You can also set an incentive based on a percentage of the money earned or saved on the trial. If you are a defendant in a case where the plaintiff has a great opportunity to settle for $1 million, negotiate a flat fee if the case goes to trial, plus a bonus if the plaintiff ends up receiving less than $1 million. If you are a plaintiff and estimate your case is worth between $1 million and $2 million, you can negotiate services for a flat fee plus a percentage of any settlement over $1 million.
Contingency fees make the matter a shared risk or shared incentive, making the law firm your business partner, not just your representation. Contingency fees can work well with both fixed rate arrangements and reduced hourly rates. Because there are a number of variations on the “pay-as-success” theme, you should ask companies what options they’re willing to explore.
If you are looking for a firm for substantial legal work involving a number of legal specialties, consider using blended hourly rates. Instead of each attorney billing at the usual hourly rate, the firm calculates an “average” rate in advance based on the anticipated time each attorney spends on the matter.
The value of this arrangement is twofold: it helps define responsibility on a project and provides a fair pricing program for the client, which avoids paying a senior partner’s hourly rate for research that should be done by a junior partner.
Legal “insurance” firms without an in-house attorney that frequently hire legal services might consider hiring a firm. In this legal billing option, firms and clients agree to a specific charge per month in exchange for a predetermined set of legal services. The contract fee allows the client to pick up the phone and talk to the attorney without looking at the clock. This approach works like a legal insurance policy. It encourages companies to contact their attorneys in matters other than litigation and non-crisis, and to save money in the long run by engaging in more preventative legal action.
As in business, the impetus for change comes from consumer demand. The sooner companies take the initiative to secure more effective personalized billing methods from their legal advisors, the sooner they will get better and more cost-effective legal assistance.