Legal Commentary

But Who Insures My Profitability?

By Patrick J. Lamb

The AmLaw Daily contains a fascinating post, GCs, Law Firms And Flat Fee Arrangements: A Matter Of Trust.  One outside lawyer is quoted as saying that "the single biggest obstacle to flat fee arrangements is fear."  The reporter goes on to say that clients worry about the quality of work they will get and outside counsel worry that they will lose money if something unexpected happens. 

Most outside lawyers still don't get it.  Start with this:

At the conference, some outside counsel said companies have an obligation to ensure their firms don't lose money if a turn of events isn't due to the firm's negligence.

This is, at core, a view that clients must insure the firm's profitability.  The article does not suggest that outside lawyers worry that they will make a windfall if something unexpected happens that reduces the work they need to do  and increases their profit margin. So, for the outside lawyers, flat fees must be a win or break-even proposition for them to be acceptable.  How quaint.

This quaint view that their profits must be guaranteed infects many fee proposals.  Silvio DeCarli, DuPont's Chief Litigation Counsel, notes that DuPont frequently gets fixed fee proposals where the firm makes money if DuPont loses the case and makes even more money if the Company wins. 

As more firms try to offer alternative fees, clients should be wary of this "heads I win, tails I win more" approach to fee calculation.  Real partners win together, but they also lose together.

Full post as published by In Search of Perfect Client Service on June 09, 2009 (boomark / email).