Chapter § 1.03 Managing Outside Counsel Costs

• Jurisdiction: United States
• Publication year: 2020

§ 1.03 Managing Outside Counsel Costs

[1] Alternative Fee Arrangements

There are several strategies and actions that legal departments can take to deal with cost issues, such as using alternative billing techniques. Overall, many in-house counsel do not find that traditional billing (i.e., billable hours) in litigation is particularly effective because it creates an incentive, however unspoken, for law firms to bill a larger number of hours than needed to complete a matter and to charge clients for off-the-shelf work that has previously been completed for another client. Additionally, under traditional billing practices, the client bears most of the risk that litigation will mushroom beyond the expected number of hours. However, the type of alternative arrangement that makes sense for a given matter is situation-specific. The market has not yet created a superior, generally applicable alternative to the billable-hour model.

Devising alternative strategies is difficult for several reasons, one of which is that seemingly similar cases can have starkly different outcomes. Some cases settle after only a couple of months, while others go all the way to trial. This reality inhibits a company’s ability to negotiate alternative fee arrangements, such as flat fees for an entire litigation, a monthly retainer, or an annual cap on litigation fees. This is true on the defense side in particular, because the plaintiff normally controls the flow and timing of a case by making motions, seeking discovery, pressing for a trial date, and other steps. It is not easy to predict the steps that a plaintiff’s lawyer will take, and U.S. law does not place many constraints on the ability of a party to assert and press claims in litigation.²¹

In addition, alternative fee arrangements often mean that work is moved to a lower-level firm attorney. For a fixed or capped budget, this may mean that little work is done or feedback provided after the cap is reached. In cases with a great deal of money at stake, however, alternative fees can prove valuable. For example, outside counsel may consider representing a company on a contingency fee²² basis when a large monetary recovery is relatively certain and the economics of using an outside lawyer with a standard hourly billing system does not work for the company.

[2] Phase-Gate Process

A “phase-gate process” (also referred to as a stage-gate process) is a project management tool in which a project is divided into distinct stages or phases...