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In Search of Perfect Client Service Why lawyers don't seem to get it

Discounted hourly rates are not alternative fees

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I had to do a bit of catching up on my MCLE, so I watched a program entitled Attorney Alternative Billing Options and Their Ethical Considerations.  Apart from the absence of any meaningful discussion of ethical issues, I was stunned by the speaker’s unequivocal statement that “discounted fees are a form of alternative fees.”  I am appalled that any thoughtful person would encourage this pablum, which is the nicest term I can conjure.  Alternative fees are based on the billable hour.  Not only do discounted fees not align the economic interests of firm and client, the structure has been proven not to lower total spend.  Empirically, it is no alternative at all!  Shameful shilling for large law firms who want to look like players in the AFA world but do little more than adjust their bills.

  • Liz Harris

    Neither are blended rates or capped hourly fees

  • I do think caps qualify as alternative fee arrangements because they shift the risk and incentive to counsel to control or reduce costs. (Though I feel caps are least desirable of all AFA). Discounted fees could be a form of AFA if the discount is tied to the outcome (just as with an outcome-related bonus). But I agree there’s nothing much “alternative” about a mere discount.

    • I disagree on the notion of caps, unless there is sharing of the savings. If not, the outside lawyer has incentive only to work to very edge of the cap in order to extract the last dollar. The reason fees that have their basis in hours are not “alternatives” are because they do not create incentives for outside lawyers to work less to achieve the same end. Sorry, Alex, but the empirical proof is overwhelming that hours-based fee arrangements of whatever flavor or variety do not create value for the client and do not lower a client’s costs.

      • I recognize we’re not going to agree on this point. But two assumptions behind my inclusion of fee caps in AFA are (1) that lawyers handling matters on a “capped” matter will act ethically in billing and reaching the cap when the practitioner would ordinarily reach it–not “rushing” to the edge of the cap; and (2) that the cap itself (unlike a flat fee) automatically represents a concession from the lawyer (recognizing the possibility he/she could get stuck litigating a complicated case with an unreasonably low cap). The incentive–at least assuming the practitioner works and bills ethically–is to resolve the dispute before reaching the cap. If we’re going to open the discussion to unethical billing, or any manipulation of the compensation structure that is intentionally disadvantageous to our clients, then it will be hard to defend any fee arrangement–alternative or otherwise.