Capped fees under an hourly rate approach are commonly used to set a ceiling on what the client
will pay the law firm on a particular matter or for a particular piece of work. Examples include
payment of not more than X to prepare and argue a summary judgment motion, and payment of not
more than Y to close a M&A transaction.
•;Advantages: When executed properly, this approach resembles a fixed fee (discussed above),
but in theory, the client pays less if the law firm bills fewer hours than anticipated, thus not
reaching the cap.
•;Drawbacks: While that sounds good, many observers have note 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 of the
benefits 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 comparative
– Still, this approach provides a stronger level of management as compared to unbridled
hourly rate billing.
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 includes a 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 the marker 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 so mot those savings with the client?
ACC Guide to Managing
Outside Counsel – 2011
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