Everyone claims to offer fee structures that are alternatives to the billable hour. Frequently, these “alternatives” are nothing more than estimated hours x hourly rates, plus “a little cushion.” So clients should ask:
1. How did you determine your alternative fee? What metrics did you examine? What factors did you consider? What experience did you draw on? Can I see your worksheet?
If the lawyer mentions hours, that have provided only a surrogate hourly rate number. But its locked in. Early settlement? Client loses. Case goes the distance? Law firm covered. That is not risk sharing under any definition.
Everyone knows that those who are serious about alternative fees have learned to handle things differently? Legal Project Management. Lean Six Sigma. Project Management. Process Mapping. Those words mean something to those truly committed to alternatives because these are among the things that drive the cost of production down (and hence increase profit margins).
2. How do you handle cases differently under the alternative fee you quoted than you would if you were billing by the hour?
If the answer is “we don’t,” they you need to ask “how are you doing things differently now than you were three years ago? Be specific.” The questions should elicit some specific response—changed staffing, great risk-taking, more partner involvement at the front end–something to show the manner of handling has changed significantly.
If the answer is that there is a difference in how the cases are handled, ask if the changes are designed to improve the firm’s efficiency and reduce the cost of handling the matter. The answer must be yes or the firm is too stupid to let them work for you. Once they answer yes, ask why they are doing those things when it benefits them (lower cost equal higher profit margin) but not when it would benefit you (cost plus billing)? There is no acceptable answer.
Everyone knows there is a huge amount of fat built into litigation, particularly in the process pieces of litigation. So clients should ask:
3. What is your disaggregation strategy, and why?
If there is no disaggregation strategy, the firm hasn’t eliminated the fat. It’s just that simple. The best answer, in my view, will be that document review (not just first level review, but all review right up until partners lay hands on the documents) should be outsourced. There are professional reviewers who do more, at a higher quality and provide more useful work product, than any law firm could consider, for a fraction of the cost. The cost difference is quantifiable. And the difference is money in your (the client’s) pocket.
Ask the questions. Don’t accept the standard lawyer pablum as an answer.