Choosing the right lawyer is not an easy task, and one of the many benefits of conducting your lawyer search through Priori Legal is having a guaranteed free legal consultation. Your free legal consultation is not only an opportunity to become better acquainted with your potential lawyer, but also for the lawyer to get to know you and your legal issue.
To ensure that you get the most out of your 30 minutes, we put together a blog series of important questions you'll want to ask a lawyer during your free legal consultation. In Part 1, we explained how lawyers determine their rates and detailed the two most common fee structures: hourly rates and fixed-fee packages. Here, we will examine some of the remaining alternative fee arrangements.
Alternative Fee Arrangements
A study in 2013 found that over 96% of all law firms use non-hourly based billing or alternative fee arrangements (AFAs). Primarily law firms’ utilize AFAs in response to client requests, which have grown substantially in recent years.
AFAs are available in all practice areas, and for certain matters offer a better value propositions for clients. Many lawyers offer a wide array of AFAs, and will use them in combination with each other to create a fee arrangement specific to your matter. Here is a list of AFAs that you may want to discuss with your lawyer for your next legal matter.
The AFA Menu
Contingency Fees— a specified percentage of the financial recovery or other result awarded to a client. The lawyer shares the risk of the representation because payment is contingent on an award in favor of the client. Contingency fees are traditionally used in representing plaintiffs in litigation matters where there is an expectation of monetary damages. With corporate law, clients would agree to pay the lawyer a certain percentage of the deal. This type of fee arrangement has recently gained traction among merger-and-acquisition lawyers.
Capped Fees— the client pays the lawyer on an hourly basis, but the lawyer agrees that the total fee will not exceed a specified or “capped” amount. Capped fees allow the client to predict the maximum cost of the legal engagement, but a lawyer is not likely agree to such a fee structure where the scope of the representation is unpredictable. In such a case, you can ask your lawyer to establish “soft cap,” which establishes a maximum fee based on specified assumptions about the course of the representation.
Phased Fees— specified fees for each discrete phase of a given representation. This type of arrangement works in matters with well-defined segments. For example, with a litigation matter payment could be separated into the following stages: pleadings, discovery, motions, and trial.
Collared Fees— an agreed-upon fee with a collar. If the value of fees is above or below the collar, then the lawyer and client agree on a percentage of the overage/underage to be credited or paid.
Value Fees— a fee that combines paying a fraction of the hourly arrangement with an additional fee amount to be paid if the result exceeds a specified amount. The lawyer and client share the upside of a favorable outcome. Alternatively, the lawyer is negatively affected by an unfavorable outcome, but does not assume the entire risk, as with a contingency fee.
Holdback Fees— an agreed-upon amount or percentage of the fee that the client withholds until a specified result or time-period is reached. The holdback fee is a good option when hiring a lawyer for the first time because the client can link payment with satisfaction with the lawyer’s performance.
Blended Rates— an agreed-upon hourly rate that applies to all lawyers (partners, associates, of counsel, etc.) working on a matter. This fee arrangement is most appropriate when dealing with lawyer with a high hourly rate, who enlists less experienced attorneys with lower hourly rates to assist in the matter. This benefits the client because it prevents paying a partner’s hourly rate for the work of an associate, and also benefits the lawyer because it eases the complexity of generating a bill on a matter on which lawyers with different rates are working.
Outside General Counsel—clients hire a lawyer to provide counsel to their business as needed. In exchange for an agreement to use that lawyer for its legal issues as they arise, the lawyer offers the client a discounted hourly rate. In addition, the lawyer and client develop a working relationship and the lawyer comes to understand the client’s business. While this is a viable for any business, it is best suited for smaller companies and startups with no in-house legal stage to advise and handle routine legal matters that businesses face on an ongoing basis.
Deferred Fees—an agreement where payment for legal services is deferred until a future date. The lawyer and client agree upon the future date, and an interest rate at which the fee will accrue. This billing process is typically advantageous for startups that don’t currently have the capital to allocate towards legal fees, but do not want to give up any equity to a lawyer.
Equity Exchange—a lawyer provides legal services in exchange for equity in the client’s company. This fee structure works for companies that are willing to give an ownership stake, and for lawyers willing to assume the risk of receiving no future payment at all, if the company is unsuccessful. On the other hand, the lawyer could receive a big payout if it cashes in its equity during a buyout or IPO.
There is no fee arrangement that aligns the economic interests of the client and the lawyer perfectly for all matters. But lawyers and clients continuously working together to develop mutually beneficial cost saving fee arrangements.
If you’ve worked with a lawyer to create an AFA, and don’t see it above, we’d love to hear about it!
Priori Legal is an online network of vetted attorneys. We ensure that our lawyers develop more efficient and affordable ways to provide legal services. Prior to your free legal consultation, we’ve already worked with our attorneys to provide you with an hourly rate that is 25% off their usual rate and detailed chart of the relevant AFAs packages that attorney offers.
Priori makes it easy to find a trusted, vetted attorney at a below-market, fixed rate. Find a lawyer for a free legal consultation here.