The legal market is experiencing a shift in the delivery of legal services as alternatives to legal hourly billing are being emerging.
For nearly 70 years, the billable hour has been the main method of billing in a legal practice. There are two essential features to this billing structure: charging on a time basis; and measuring performance against financial targets. Clients pay for legal services in a way which has no relationship to the value they receive, and lawyers are recognised and rewarded not based on skill, experience, complexity, efficiency, or innovation, but on how much time they spend doing the work.
Clients now expect new and innovative methods of billing. These include:
Fixed or capped fee
Fees are agreed between the lawyer and the client from the start; the client knows how much the lawyer will charge (or, in the case of capped fee pricing, the maximum they will charge) and what they are entitled to receive. The lawyer bears the risk on any inefficiency but gains a windfall if it takes less effort than anticipated to resolve the matter.
A flat fee is a one-time cost. The rate will vary by geographic area and type of case.
Flat Fee Recurring
This is a relatively new billing type. Think of flat fee recurring billing like a monthly gym membership. With flat fee recurring, the lawyer typically guarantees some level of service or hours. If you have ongoing legal issues or need your payments spread out this might be a good option for you. Not all lawyers offer this option, so be sure to ask.
Flat fee + hourly rate
A flat fee is charged when the initial work on a matter is routine; thereafter, an hourly rate applies when the scope of legal work is less defined.
A fee is charged only if the lawsuit is successful or is favourably settled out of court. Fees are usually calculated as a percentage of the client’s net recovery.
The client and the lawyer agree what constitutes success; this might be an early resolution of the case, reaching agreement below a set amount or reduced litigation costs agreed to. If the firm is unsuccessful, the firm shares the pain with the client for the less-than-ideal outcome.
Task or unit-based billing
The client and the lawyer agree on fixed amounts that are charged for the identified tasks or components involved in a deal.
The client gains access to a specific set of services for a predetermined price paid, depending on the nature of the plan purchased (e.g., a plan may specify a number of hotline calls and matters per month, and flat or discounted rates for work outside the scope of the subscription).
Using this method, the client and the lawyer develop a complete understanding of the scope of the matter, plan for how the work will be conducted and agree on a budget for implementing the plan. Involves a system for continuous monitoring and communication as the plan is implemented and revised, and a process for evaluating the outcome and improving on it for the future.
This is where a portion of the fee (e.g., 20%) is held back by either the client or the firm and not paid until the end of a matter or when some other benchmark is reached. At that point, either at the client’s discretion or according to some other criteria, the holdback (or some portion of it) is paid to the firm or refunded to the client. There are infinite variations on this concept, but the idea is that the lawyer’s performance and client’s satisfaction are the criteria by which allocation of the holdback is determined.
Equity in lieu of fees
The lawyer receives equity in the client company instead of monetary payment for legal services.
A retainer fee is an advanced payment for future legal services. For example, a client may be asked to provide a retainer of 1000 Euros. The lawyer then draws their hourly rate from the retainer until it has been exhausted.
For more information read this interesting article from Lindsay Healy “The Hourly Fee. The problem and a solution“https://www.linkedin.com/pulse/hourly-fee-problem-solution-lindsay-healy-founder-at-aria-grace-law
Also look at our article, Understanding legal costs at https://buenosabogados.es/9-questions-to-ask-your-lawyer-about-costs/