Alternative Fee Arrangements: Hybrid 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 Hybrid Fees.
Any combination of fees such as contingency, flat or fixed, success, retainer, hourly, and so on, is considered a hybrid fee arrangement. Hybrid fees are risk-sharing solutions that appeal to cost-conscious clients while allowing the firm to maintain a positive cash-flow. A firm can have as many different types of hybrid arrangements as they have clients, limited only by the imagination of the lawyer and client, but most offer a core few solutions. Here are some of the more popular hybrid fee arrangements:
Hybrid-Contingency Fee – Firms may offer a contingency fee arrangement to clients — generally in cases where money is being claimed — where lawyers accept a fixed percentage (usually one third) of the funds that are successfully recovered for the client. Or, a better fit may be a reverse contingency fee arrangement where the firm receives a percentage of the difference between the amount a third party originally demands from the client and the amount that client must ultimately pay the third party, after the settlement or judgement.
For some, an even better solution for the firm and client may be a hybrid-contingency fee. In this arrangement, the firm offers a discounted hourly billing rate with the promise of a bonus in the event of a successful outcome. See: Model wording for hybrid-contingency fee agreement between lawyer and client.
Blended Hourly Rate – Not purely an alternative to hourly billing, this is a twist on the old standard where one agreed-upon rate is charged for all matters regardless of whether the work is done by a senior or junior attorney. There is some debate as to whether this is an alternative fee arrangement since it involves billing by the hour only. We’ll include it here as part of the broader definition. For a more in-depth discussion, check out: Are blended rates alternative fee arrangements?
Another alternative hourly rate is volume discount where the billable rate is reduced after the volume of work reaches a certain level during a defined period.
Hybrid-Fixed Fee – Some engagements involve complex issues or situations that cannot be easily defined. In these cases, a blend of fixed and hourly fees allow the firm and client the flexibility to get the best result while keeping costs under control and more predictable. For instance, a portion of the matter, projects within a case, or standard procedures may be charged on a fixed or flat-fee basis, while less defined engagements, like meetings which may run a few minutes to many hours, are based on a hourly fee.
Hybrid-Success Fee – A straight up success fee arrangement, the firm charges the client a reduced base fee up front with an additional fee due if the outcome of the case is successful. In a hybrid model, where the client and firm share in the risks associated with the matter, the adjusted base fee the parties agree to is a reduced hourly rate.
As mentioned earlier, hybrid arrangements that firms negotiate with clients, are based on each client’s and each matter’s unique situation, and limited only by the imagination of the lawyer and client. The core few mentioned here, however, are a good start, and useful for creating marketing copy for the firm’s website and other collateral to speak to clients seeking flexibility in their billing arrangements.