Alternative Billing

Alternative Billing is a recent development in the legal business model designed to address the astronomical, and often perplexing legal fees clients face after receiving an invoice from their attorney. The notion underlying alternative billing is the concept that how a client is billed is something that can be negotiated at the outset of the representation. Variables such as whether the fee is based upon a fixed amount, hourly billing, or a contingency are all factors that can be manipulated in order to achieve a more tolerable arrangement the client can not only understand, but reasonably pay.

A. Hourly Billing

Within the realm of hourly billing, there are a few factors that can be modified so as to present the client with a more attractive hourly fee. First, attorneys can seek to give an overall percentage discount of the total amount of hours billed. A percentage discount could apply to a present client’s bill for referring another client, or perhaps if a client’s billable hours reach some predetermined ceiling amount that would then trigger the discount.

Secondly, an attorney may always offer a direct discount off of their hourly rate. This could be offered as a straight discount, or the attorney and client may agree to a discount on the hourly rate with the understanding that should the matter for which the attorney was retained settle/conclude before some specified date, an incentive bonus will be paid on top of the discount hourly rate.

One final possibility is to implement a “blended hourly rate” where the client agrees to pay one fixed hourly fee, regardless of which attorney within the firm actually conducts the client’s work. This may be attractive when the client’s issue is highly specialized and requires the unique expertise of one of the firm’s members who normally would bill at a much higher hourly rate.

B. Project-Based or Fixed Fees

A fixed fees is often the most attractive arrangement to clients because they offer a sense of finality and order to the extent of their financial obligation to their lawyer. Similarly, this sort of arrangement is favorable to attorneys because they can budget against costs more effectively.

One safeguard clients can insist upon is a “reopener” provision which encourages the firm to recognize and pursue issues relevant to the client’s case that may have originally been outside the scope of anticipated representation. Clients may also seek to negotiate a payment plan for a fixed fee over some specified period of time or installments. A payment plan can also take the form of what is termed a “unit pricing” model where installment payments are made at certain specified checkpoints on the legal representation time line.

A hybrid model of alternative billing called a “capped fee” consists of hourly billing and potentially a fixed fee. This model arises where the client will pay an hourly fee for the case until the hours collectively reach some agreed upon amount, which will then serve as the fixed fee for the entire case, regardless of the amount of hours actually worked.

C. Contingency Fees

Although contingency fees usually represent a flat percentage fee of the attorney’s ultimate recovery or settlement on the client’s behalf, there is still room for alternative billing in the contingency arena.

To adjust for the 30-50% fee firms operating on contingency often charge, clients can negotiate for a percentage up to “X” amount, and then anything above “X” amount will be subject to some lower percentage going towards attorney’s fees.