Flat fees a growing trend among firms big and small 

Posted: 1:00 am Mon, August 24, 2009
By Michelle Lore

As the challenging economic environment continues, clients are increasingly demanding better values and more certainty in the cost of their legal services. One way law firms, large and small alike, are answering that call is by offering fixed-fee pricing.

“It’s a pretty recent phenomenon,” said Peter Lancaster, a partner with Dorsey & Whitney in Minneapolis. “I think the economy encourages companies to look at legal costs as they look at other costs.

Minneapolis attorney Win Rockwell, a partner at Faegre & Benson, said clients today are asking law firms to do what the rest of the world is doing — provide a given service for a set price.

“They want a quote for the service and they want the firm to deliver on that budget,” he said. “This is a legal industry-wide trend.”

Expanding to litigation

Flat-fee pricing has long been used by small-firm lawyers in transactional matters where the time likely to be expended is somewhat predictable, such as estate planning, wills, entity formation and foreclosures. But the call for alternative fee arrangements has clearly been increasing due to the troubled economy.

Robert Fafinski of Fafinski Mark & Johnson said that his firm is offering a flat rate to form any new corporation or limited liability company through the end of the year. Many people who have lost their jobs want to start their own business but are hesitant because of the cost. A reasonable flat fee for forming the entity gives clients value and certainty, he said.

Duluth family law attorney Jessica Sterle has been increasingly using flat-fee arrangements in divorce cases.

People realize that it could cost them thousands of dollars if they don’t resolve property and custody issues themselves and they can’t afford that right now, she said. “I’m retained to draft the paperwork necessary to get the divorce done.”

St. Louis lawyer, writer, speaker and entrepreneur Matthew Homann believes that any case can be priced on a flat-fee basis if the attorney has the experience to properly evaluate the matter and has the systems in place to handle it economically.

Lancaster, who is on a committee at Dorsey that meets daily to examine, approve or reject proposed alternative fee arrangements, agreed. “Conceivably, [flat-fee pricing] can be used in any type of case, although it’s harder in some than others.”

Larger firms offering fixed-fee pricing usually do so on transactional matters. Surprisingly, big firms are even offering flat fees on some complex transactions, including patent prosecution, trademark, corporate contracts and real estate.

Some big firms are now expanding the flat-fee concept to litigation, particularly in cases in which clients tend to get hit frequently with a certain type of claim.

“There are quite a number of categories of cases out there where there’s a certain uniformity to the cases,” said Rockwell. “Those are fairly susceptible to alternative-fee and flat-fee pricing.”

Minneapolis attorney Todd Noteboom, who leads an alternative-fee task force at Leonard Street and Deinard, agreed. “I think flat fees can work very well both for a firm and for a client when you have some sense there will be repeat litigation and that there will be some predictability around it,” he said.

Homann is confident that flat-fee billing can be used successfully in the litigation context. The key, he said, is to enter into a mutual understanding with the client that accounts for the unexpected.

“Define ahead of time the kinds of things that are truly out of the ordinary and make certain the client understands that when circumstances change dramatically, so too can the price,” he said.

Offering fixed-fee pricing for certain aspects or phases of litigation, such as answering a complaint or handling discovery, is another growing trend among larger law firms.

According to Homann, assigning a price to each discrete service — such as taking depositions or answering interrogatories — is a good way to at least begin down the road of fixed-fee pricing.

“Then, in partnership with the client, a lawyer can map out a strategy for litigating the case and give the client a pretty accurate picture of the costs before they are incurred,” he said.

Aligning interests

Much of the push for flat-fee and other alternative pricing arrangements is coming from clients. Noteboom said that in the last 12 to 18 months in particular, clients have been requesting more options for paying legal fees.

“We’re hearing more and more talk about ways that we can partner with firms to help them reduce costs in these challenging times, and alternative fees are one example of that,” he said.

Rockwell compared a client’s need for legal services to buying a piece of capital equipment. “If you know how much it costs, it’s easier to make a decision about whether to buy it,” he said. “Likewise, [with flat-fee pricing] the client is able to assess in advance how much it’s worth spending on a clump of legal services, and if it’s too much, to make a decision not to do it.”

Some practitioners say that the greatest advantage to flat-fee pricing is that it aligns the client’s and the lawyer’s interests, at least in the short term.

Many clients are uncomfortable with the notion that their lawyer makes more money simply by spending more time on a matter, said Lancaster, adding that it therefore benefits the lawyer to remove that concern through fixed-fee billing.

Homann added that with flat-fee pricing both the lawyer and the client seek to handle the case in the most expeditious way. “And law firms are now driven to embrace client-friendly innovative practices such as document assembly and outsourcing menial work to lower-paid workers instead of eschewing them,” he said.

Rockwell pointed out that flat-fee arrangements help law firms to be more efficient and client service oriented.

“Alternative fees encourage law firms to analyze their own work and to engage in a closer dialogue with the client as to what’s needed,” he said. “Ultimately it makes the private law firm more competitive.”

Noteboom said that for alternative fees to work well there needs to be communication. “I think they work best when there’s a lot of up-front information sharing between the client and the law firm so that everybody is operating from the same basic [starting point].”