How Does Value-Based Pricing for Legal Services Work?

One of my new freedoms – as the owner of a law firm – is the ability to price my services creatively. My billing arrangements are based on what clients consider to be appropriate valued-based billing fees. This can be based on time spent or fixed fees, but also on results achieved.

Sure, hourly billing is appropriate at times. But people in the design and construction industry may be reluctant to hire a lawyer with an unknown or open-ended fee structure. I know this well. And I have the flexibility to work with clients who need targeted legal advice in Chicago, and certainty in their legal fees. This can include fixed fees, which are well-suited for contract negotiation and small projects. Even on more complicated projects, fees can be phased based upon assumptions of risk by me and my clients.

Many in design and construction run tight profit margins. I know that many have small, or zero, budgets for legal expenses. Still, an ounce of prevention can save money in the long run. Most people who design and build understand this – even those who take a “do-it-yourself-and-cross-your-fingers” approach to managing risk.

Since I focus exclusively on design and construction, I have dealt with most kinds of contracts and problems. This allows me to work efficiently. It also empowers me to deliver value, through small scopes of work, to clients who might be surprised that they can afford counsel for things like contracts, novel issues, and dispute avoidance.

Predictable Fees for Contracts

For transactions, our billing arrangements can include hourly charges for complex contract preparation and negotiations, but also creative options such as these:

Fixed Fees for Contract Templates: We can provide a wide variety of contract forms for repeat client use. This can include Terms & Conditions for the back side of proposals. It can include from AIA Contract Documents with custom edits for specific client and project types. Or it can include custom contracts for specific situations. While they cannot be used on every project, all owners, developers, designers and contractors should have a set of “their own” preferred contract forms.

Contract Review Subscriptions: We offer fixed fee arrangements, charged on a monthly or quarterly basis, for occasional contract review. This is great for design firms that dislike being charged for every second they might want to speak to a lawyer. Many architects and engineers are forced to sign their client’s contract forms. These designers often want an experienced attorney to review the contracts not just for “insurability,” but other commercial terms.

List of “Top 10” Contract Issues: Many clients lack the bargaining power to insist on perfect contracts. Most want to design and build, not get hung up on negotiations. They might not “sweat the small stuff,” but many do want to understand the “Top 10” problems and issues any given contract. Small scopes of work like this can be billed efficiently on an hourly rate basis, or based on flat fees, if the client desires.

These are just a few options. They are highly adaptable, based on what clients value.

Proactive Dispute Avoidance

Dispute avoidance gets too little attention in design and construction. Most people focus on beginning and end of projects: contracts and claims. Yet, most project activity happens between these “bookends.” Proactivity during project execution can align incentives, maximize opportunity, and minimize risk. Creative billing arrangements during this important phase can include:

General Counsel Retainers: Long-term arrangements, billed monthly or quarterly on a fixed fee basis, in which clients can confer with us about resolving whatever issues they face at the moment. This can work well for clients who might hesitate to pick up the phone fearing unpredictable or “by-the-minute” attorneys’ fees – but do not want potentially avoidable problems to develop into expensive disputes.

Blended Fee Arrangements: A discounted rate, negotiated with clients before problems arise, can be mutually agreeable when paired with other legal services. For example, if we prepare the project’s contracts, a client might want us to stay involved, at a discounted rate, to steer the project to a successful conclusion.

Task-Based Fixed Fees: When clients face a difficult meeting, or need help crafting an important letter, or just want to brainstorm about a specific problem, a fixed fee arrangement might be appropriate. Fixed fees, negotiated in advance, lend themselves to any definable task or scope of work, and can avoid billing surprises.

If resolution of a problem or issue requires considerable effort, or requires negotiations with other parties, a switch to hourly rate billing might be appropriate. However, nothing prevents us from trying a more creative and predictable billing arrangement at the outset.

Mediation, Arbitration and Litigation

In dispute resolution, hourly rate billing is most common…with good reason. Disputes are inherently unpredictable. Opposing parties can be difficult. They are often represented by skilled attorneys who play a zero-sum game: they win if you lose. Often, this involves lawyers intentionally “making work” for their adversaries. This makes predicting the level of effort, and the appropriate legal fees, needed to resolve the dispute difficult. However, hourly billing is not the only option. Creative billing arrangements for mediation, arbitration and litigation can include:

Capped Phase or Task Billing: Since dispute resolution often comprises phases or tasks, each can be separately priced. For example, complaints can be drafted, court appearances can be made, and depositions can be taken with fixed fees agreed for each task. Entire phases of litigation – like pleadings or discovery – can be separately priced, subject to adjustment depending on how the case develops.

Results-Based Fees: We aim to spare clients the expense and difficulty of litigation and arbitration, and will consider sharing the risk and upside. This could involve, for example, billing at a discounted hourly rate to file and argue a motion to dismiss – and earning a “success fee” if it is granted by the judge. Similar arrangements might work in difficult cases we are able to settle the dispute early, including in mediation.

Partial Contingency Fees: In a variation of “success fees,” discounted hourly billing or fixed fees can be paired with contingency fees. This arrangement involves the attorney receiving a percentage of any ultimate recovery the client achieves. I have handed many cases on a contingency fee basis, and I have a successful track record of spotting meritorious claims that fit well with this arrangement.

Given the difficulty in predicting how Litigation and Arbitration matters might unfold, lawyers and clients need a flexible mindset in alternate fee arrangements. When disputes resolve more easily than anticipated, fixed fee arrangements might need to be reconsidered. The same is true when disputes prove more contentious or involved than originally reasonably anticipated.

The Point? Smart businesspeople know that incentives matter – and they are wise to align their incentives with those of their legal counsel. Smart attorneys, for their part, know that hourly billing can put their services beyond the reach of deserving clients. These factors create opportunity for forward-thinking lawyers who price their services based on value delivered.

Now, the death of the billable hour has been long predicted, and greatly exaggerated. It is unlikely to ever disappear completely. Hourly billing is often the most appropriate and fair way for attorneys to deliver, and clients to consume, legal services in Chicago. However, clients should pay for value – regardless of whether lawyers deliver it on an hourly billing or other basis.

Having practiced law in Chicago and nationally for nearly two decades, I pride myself on the efficient delivery of value and wise counsel. I have seen most kinds of design and construction contracts and disputes. I have also participated in mediation, arbitration, and litigation continually since 2002. I deliver for clients by drawing on this design and construction experience, not by reinventing the wheel.

Now, with the freedom to price my services in creative new ways, I hope to be able to deliver value to many more client types who design and build in Chicago.

This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.

Hourly billing alternative? General Counsel Retainers - Blended Fee Arrangements - Task-Based Fixed Fees - Capped Phase or Task Billing - Results-Based Fees - Partial Contingency Fees.

Hourly billing alternatives? General Counsel Retainers – Blended Fee Arrangements – Task-Based Fixed Fees – Capped Phase or Task Billing – Results-Based Fees – Partial Contingency Fees – and More!