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Alternative Fee Arrangements: Success Fees

Alternative Fee Arrangements - Success Fees

Alternative Fee Arrangements - Success 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 Success Fees.

The “Success Fee” is a billing method that law firms can employ to incentivize positive outcomes for their clients. This fee arrangement, which focuses on value efficiency rather than hours worked, benefits both clients and attorneys while increasing the likelihood of success.

While they are both considered to be “risk sharing” fee arrangements, success fees should not be confused with contingency fees. Contingency fees are only paid if a lawyer handles a case successfully. With a success fee arrangement, a reduced base fee is paid up front while another portion is awarded for successes achieved. These “successes” might include such things as achieving a desired schedule, winning a deposition motion, early resolution, etc.

Success fee arrangements require significant thought and communication at the onset of on each case. There must be a great deal of focus in defining what the client’s objectives are so that both the lawyer and client specifically understand what constitutes each level or marker of success. Law firms are then encouraged to work thoroughly and efficiently to reach each of the predetermined success “goals”.

In the event that a case is not resolved successfully, the law firm may forfeit a percentage of the fees that they had previously collected. This further encourages the counsel to work diligently towards a favorable outcome for their clients.

This particular fee structure is often used in defense cases, or in other situations where the client is not solely seeking monetary compensation. For example, success fees would work well for patent cases, but not personal injury cases where the client is seeking a monetary settlement. It is a good option for clients who prefer predictable costs, timing, and have clear goals.

In the end, both the client and the law firm stand to benefit from the success fee arrangement. On the client’s end, case expense is reduced if there is no successful outcome. On the other hand, the law firm stands to make premium returns if they deliver a win for their client.