7 C. Types of value-based fees
TIP: Good project management facilitates the negotiation and development of value-based
fees, such as flat fees and retainers (whether or not combined with success fees or collars).
Scoping a project as part of the planning stage including who will do what, how much effort
they will put into it, and what they will deliver and carefully developing the budget aid the
negotiation process because they help both the legal department and outside counsel clarify
the cost and the value of the work.
The case example in Chapter 8, p. 76, focuses on value-based fees and a value-added delivery
structure for Colt, a Europe-headquartered international company.
Value-based fee options
Fixed fees are used to affix a price to a “deliverable” or a distinct piece of work, with all ancillary
preparation and effort reflected in that price. Data can come from multiple sources (historical
information, other items in the portfolio, bids or price quotes from existing firms or new firms).
Litigation examples include paying X as the “all in” fee for a law firm to draft and argue a summary
judgment motion, paying Y as the “all in” fee per deposition taken, and paying Z per page or per
gigabyte for first level/responsiveness review on a document production. Transaction examples
include paying X to produce initial draft of license agreement Y to negotiate outstanding issues with
other side; and Z to finalize documents and conduct closing.
Not all matter or all deliverables are equally complex. As a result, what is ostensibly a similar piece
of work–a summary judgment briefing and argument – may cost very different amounts across
two different matters based on complexity. That is as it should be. Increasingly, sophisticated
clients capturing their data over time to build fee schedules for pieces of work based on degrees
of complexity. This enables them to compare prices of “like” projects or deliverables with similar
complexity profiles to arrive at apples-to-apples assessments on cost. This requires an investment of
time and effort, but the case studies below illustrate the larger benefits.
•;Advantages: This approach accommodates uncertainty and provides flexibility in the future
scope of work by pricing “units,” which allows for fee adjustments as the number of units
rises or falls.
•;Drawbacks: It takes time and effort to properly craft the numbers and adjust for changes in