Overview and Negotiation of Special Fee Structures

Reed S. Oslan, P.C., Partner

TerminologySpecial Fee Arrangements

“SFAs”

THE LEGAL FEE PRICING MENU IS

EXPANDING THROUGH SFAs

The Special Fee Relationship

• Remains an Attorney/Client Relationship• Risk Sharing• Potential for Adversity• Written Fee Agreement is a Contract• Requires Case-by-Case Up Front Analysis• Incentives Matter• Goal - Strike Fair Balance of Risk and Reward

for Firm and Client

Fixed Fee

• Pre-determined Fee For Entire Matter(s)– e.g. $1 Million for Defense of Contract Action– Paid Up Front or Over Time– Fee Set by Negotiation Between Client and Law

Firm– Scoping and Budgeting Critical

Fixed Fee – Client Perspective

• Pros– Certainty– Risk Above $1 Million Shifts to Law Firm– Eliminates Budget Killer– Administrative • No Need to Track Time or Bills• No Need to Supervise Staffing

Fixed Fee – Client Perspective

• Cons– Might Overpay Versus Hourly Billing

– No Economic Alignment to Result

– Poor Pricing Could be Problematic

Fixed Fee – Law Firm Perspective

• Pros– Certainty of Fee – Possibility of Earning a Premium for Efficiency– Addressing Client Concern - Relationship Building– Administrative Benefits• Less Client Pressure re: Staffing, Time• No Billing

Fixed Fee – Law Firm Perspective

• Cons– Fixed Fee Is Too Low

– Fee Might be too High and Might Damage Client Relationship

Fixed Fee – Strategic Considerations

• Pair With Result-Oriented Payment for Optimal Alignment

• Consider Risk/Reward Sharing

• Make Sure Fee Is Reasonable

Fee Cap

• Law Firm Bills Hourly Until Hits the Cap - up to $1M

• Same as Fixed Fee but No Guaranteed Payment• No Economic Incentive Below the Cap - for

Efficiency• No Result-Oriented Alignment• Pair with Risk/Reward Sharing

Contingent Fees

• Law Firm Invests Fee and Payment Is Contingent on Outcome of the Matter

• Plaintiff and Defense Cases

• Can be 100% Contingent or Partially Contingent

Contingent Fees – Client Perspective

• Pros– 100% Fee Risk Shifts to Law Firm– Budget Relief– Law Firm 100% Aligned with Client re: Outcome– No Billing or Staffing Concerns

Contingent Fees – Client Perspective

• Cons– Fee Could be Well in Excess of Hourly Fee

– Law Firm May Require Greater Control Over Strategy

Contingent Fees – Law Firm Perspective

• Pros– Expand Firm Business by Sharing Risk

– Substantial Economic Incentive/Upside

– Alignment with Client re: Billing/Staffing

TAKEAWAYS

• WE ARE IN A PERIOD OF DRAMATIC CHANGE

• SFAs ARE EMERGING AS NEW MENU ITEMS

• CLIENTS AND LAW FIRMS SHOULD EMBRACE SFAs, AS THEY ARE HERE TO STAY