I was talking about Value Fees to two senior partners from two of the largest and best law firms in the country. Their take was that clients were not interested. This conclusion was based on the fact that they had offered clients “alternative fee proposals” and the clients had not accepted them.
I asked their take on a conversation I had recently with a client where the client complained that the alternative fees being offered to him were higher than he expected to pay under the hourly system if the case had gone to trial. His take? “At least if I go hourly and the case settles early, I won’t have to pay the full fee.” Both of these partners acknowledged that their alternative fee proposals are generated by guessing—generously—the number of hours a matter will require and multiplying that number by the hourly rates of the people who would spend those hours. One acknowledged that addition of a “fudge factor” while the other remained silent on that issue.
Think of proposals like these as a “wolf in sheep’s clothing.” Other than budget certainty (at the highest end, mind you), there is no risk sharing in these kinds of proposals and they make no attempt to reduce the client’s outlay. Proposals like this are alternative fees because they are different than hourly fees (at least in name), but they are not Value Fees.
Value Fees reduce the cost clients would pay if they paid for the service using the hourly system and they provide budget certainty. They do more, too, like relieving in-house counsel of the burden of acting as fee cop and catching the billing “errors” or other problems that crop up in bills and always seem to work in favor of their firm.
I believe the “wolf in sheep’s clothing” is the dominant methodology used by big firms, indeed, most firms to calculate alternative fee proposals. This approach does not serve clients, and clients are right to reject these proposals. But clients would be foolhardy to ignore the real and significant benefits that can be obtained from those who offer Value Fees.