As the cost of legal fees continues to rise, many clients are justifiably concerned about the economic implications of retaining an expensive law firm. According to the legal fee analysis organization NALFA, a not insignificant proportion of the country’s top attorneys have recently begun charging more than one thousand dollars an hour for their services.1 Adding to that the ever-increasing cost of junior associate billings,1 many businesses are facing a conundrum: the price of legal services often exceeds the cost involved with litigating or settling a matter. To fulfill their responsibilities to clients, law firms must move beyond costly price structures and embrace value-added billing – an approach that emphasizes the importance of improving a client’s bottom line by embracing flexible billing rates and alternative fee arrangements. 

What value can a law firm legitimately claim to provide when its billings outstrip the cost of a settlement? Despite all the cachet that comes with the retention of a large national firm, common sense dictates that clients are getting a raw deal when law firms cannot add value in the course of their work. If clients do not see their bottom line improve after retaining a certain firm, that firm simply does not deserve their business.

Value-added billing does not just benefits clients, however. In the long run, it may well benefit law firms to make an honest accounting of the cost of legal services – especially because clients may cut and run if they find themselves overpaying for legal fees. Value-added billing may also obviate the newfound preference of many businesses for non-traditional legal services,2 which often prove to be more flexible and economical than the costly billing practices employed by most firms.

To transition from unfair, costly billing practices to value-added billing, firms can make several changes to their fee structures. First, they can adjust their average billing rates in accordance with the estimated cost of litigating or settling a certain matter. If the attorney tasked with handling a certain matter realizes that their usual legal fees will surpass the expected cost of litigation or settlement, he or she should adjust them accordingly. In addition, firms can add value by embracing alternative fee structures. If an attorney determines that taking a matter on a contingency basis is likely to improve their client’s bottom line, he or she should not hesitate to do so. 

 Obviously, this sort of common-sense calculation can be thrown into confusion by uncertainty as to the final cost of litigation or settlement. The success or failure of legal procedures like litigation or arbitration (not to mention their length) cannot easily be predicted, especially considering that the introduction of new evidence or an unexpected level of intransigence on the part of the opposing party sometimes scramble the contours of a certain matter. But legal expertise and experience can help ameliorate this problem. Presumably, senior partners will have handled similar cases in the past and can extrapolate from the cost of litigating or settling those cases to estimate the potential impact on a client’s bottom line. (This assumes, of course, that firms are keeping close track of their total billings for each matter they handle).

Law is a business like any other, even if many attorneys are loath to admit it. Their primary task should be to add value, not to charge unfair fees. Anything else risks hurting the firms they were hired to represent.

1. http://www.thenalfa.org/blog/law-s-1-000-plus-hourly-rate-club/
2. https://abovethelaw.com/2019/07/biglaw-is-losing-out-on-legal-work/

Tags: Corporate, Joseph Pastore