Alternative Fee Arrangements: Fixed Fees or Flat Fees
In How Many Alternative Fee Arrangements Are There?, we identified five core types of AFAs and a sixth: a hybrid of any of the five. We’ll examine each in a little more depth. Here’s a closer look at Fixed or Flat Fees.
In a fixed or flat fee arrangement, the firm negotiates an agreed-upon cost for an agreed-upon amount of work, such handling all work related to a particular matter, or for a distinct piece of work in the matter.
Through an interview with the client, the firm determines the complexity of the project and the amount of time it would take the complete the matter. The firm and client then negotiate an appropriate flat fee for the duration of the engagement. The fee can be paid up front, when the work is completed, in installments tied to stages of a matter, or in periodic installments such as monthly or quarterly.
In this arrangement, the client gets predictable costs and the firm is incentivized to be productive and efficient in its pursuit of a successful resolution of the matter for their client. A flat fee arrangement is especially popular with in-house counsel as it provides predictability in budgeting.
Due to unpredictable factors related to litigation, fixed or flat fee arrangements are more common for transactional work. However, to address the fear of underpricing their services, firms can add a provision to reassess and renegotiate the contract based on factors that may influence the length and breath of the engagement. Unease can also be mitigated by setting a fixed fee for each stage of the engagement.
Establishing and building trust with open, ongoing communications, clarity, and transparency are key to making this type of alternative fee arrangement work.
Adopted early by solos and small firms–and used as a competitive advantage in their marketing efforts–for practice areas as diverse as estate planning, business incorporation, intellectual property, bankruptcy, and criminal defense, flat fees are gaining traction at law firms of all sizes.
“Hourly firms sell hours, not results”
The quote above is from Valorem Law Group’s excellent FAQ’s About Alternative Fee Arrangements. If you’re considering adding alternatives to the billable hour at your firm, check out the site and the musings of partner, Patrick J. Lamb. See, also: The Flat Fee Domino Effect on practice groups and the firm, by Lee Rosen.