ACC VALUE CHALLENGE - Guide to Value-Based Fees
>>Advantages: When executed properly, this approach resembles a fixed fee (discussed
above), but in theory gives the client the added up-side of paying less if the law firm bills
fewer hours than anticipated, thus not reaching the cap.
>>Drawbacks: While that sounds good, many observers have noted that the interests
remain unaligned. The law firm does not have the incentive to invest in approaches that
would reduce the cost of producing that piece of work, because it does not share in any
upside for doing so. And since firms know they can bill until they reach the cap, many
don’t attempt to control their costs until they are approaching the limit. There is also a
concern about overpaying if the client selects the wrong ceiling, not having done enough
Still, this approach provides a stronger level of management as compared to unbridled
hourly rate billing.
Case Studies & ACC Resources
ACC Value Practice: Clorox: Value Matrix for Intellectual Property Matters - Alternative Fee
Structures Based on Level of Difficulty, Staffing Mix and Billing Guidelines and Informal Training.
(Illustrates the use of capped fees of varying amounts based on complexity of underlying work.)
;Flat fee per month (or some other period) is typically used to cover services
delivered during the course of a specified period. Litigation examples include: monthly
or quarterly flat fee to cover strategy or case management in the course of litigation
and/or a “per diem” fee for trial. Other examples include: monthly fee to address
advice and counsel requests in addressing a particular issue of law. This resembles the
“retainer” approach used more frequently in years past.
>>Advantages: Provides certainty and sets the price based on the value to the client
(and presumably based on market reference prices for what other law firms of similar
quality would charge for this period).
>>Drawbacks: Some have argued that efficiency incentives may not arise if the flat fee
amount per period is not actively managed. Without further prodding from the client,
does outside counsel really have the incentive to adopt process improvements to
reduce the monthly figure and share some of those savings with the client?
;Portfolio fixed fee. Some clients have implemented a broader application of the fixed
fee approach by assigning large portfolios of work to a single firm (or a given volume of
work to a firm) for a fixed fee, often after a competitive bidding process.
These engagements also commonly provide for separate ways to address “one off”
matters outside the normal scope of the portfolio (e.g., class action lawsuit), and also
provisions to verify that scope/activity assumptions proceed as planned. Examples
include: All employment litigation for a fee of X, all product liability litigation of a certain
type for a fee of Y, all transactions of a certain type for a fee of Z, handling all securities
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