Alternative fees – Redux

The Wall Street Journal seems to focus on fees being charged by large law firms to large clients. It seems almost every other week, there is an article on the subject. In today’s paper, Jennifer Smith writes about the "resetting of legal costs." Her basic premise is that clients who obtained the "upper hand" during the Great Recession" in negotiating fees with law firms are not going back to the old ways of the billable hour despite the more robust economy today.

Alternative fees have become a larger percentage of law firms’ revenue. To use alternative fees, usually meaning fixed fees, requires a trusting relationship between law firm and corporate client. Of course, alternative fees also depends on the practice area. For example, it’s easier for lawyers to quote a fixed fee in areas such as estate planning or a percentage fee in personal injury or debt collection than it is in litigation. But, even litigators are moving to alternative fees when they can work with the client as a trusted adviser … and both sides look out for the interests of the other side.

What Ms. Smith ignores, however, is the real impetus for alternative fees. It is technology. Because of advances in technology,some tasks such as document review that used to take hundreds of lawyers many hours can now be done in a fraction of the time with a fraction of the number of lawyers.  Further, when lawyers charge by the hour and see their time reduced, and thus their revenue, there is an impetus to charge a fixed fee. The client gets certainty. The lawyer gets to keep a portion of the savings resulting from the technology. Both sides benefit.

This is classic in every industry where technological innovation occurs. The legal profession is now experiencing the same upheaval. And both clients and lawyers are benefiting.

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