In the legal profession, alternative fee arrangements include anything other than the traditional hourly rate structure. Attorney practices can explore diverse pay structures to better serve their clients and expand their ability to reach low-income and moderate-income individuals.
Review the common types of alternative fee arrangements for law firms.
Contingency billing
Firms often implement a contingency structure with recovery-based practices such as personal injury. In this case, the attorney receives a percentage of the client’s financial settlement when the case ends instead of an hourly fee.
Hard-cap billing
With this scenario, the firm and the client negotiate an hourly rate and a maximum budget for a project. If the firm does not complete the work before meeting the established budget, they must finish the project and absorb the loss.
Budget-based billing
Also called a phased billing structure, this arrangement divides a project into phases with a designated budget for each phase. This allows the client and the firm to tailor the costs of a large project or litigation as circumstances change.
Portfolio billing
This arrangement involves a flat fee for a large legal project, billed either monthly or in a lump one-time sum. With portfolio billing, the firm must rely on a carefully designed contractual scope to avoid losing money. This structure is most advantageous for a significant amount of repetitive work, such as similar lease transactions.
In addition to these four common structures, law firms can choose from almost endless types of alternative fee arrangements. Having a clear contract in place is essential for the protection of both attorney and client.
