DuPont Legal Model

Current News I Archived Library I Thomas L. Sager Award

Alternative Fees for Litigation: Improved Control and Higher Value

By James D. Shomper and Gardner G. Courson

Beginning in 1992, the DuPont Legal Function initiated a complete transformation in its purchase and delivery of legal services. Three concepts drove the new DuPont Legal Model: forging powerful relationships, leveraging technology, and improving work processes. This article discusses the design and development of alternative fee arrangements for litigation from the perspectives of both inside and outside counsel.

In recent years much has been written on the subject of alternative fees, but few corporate clients or law firms have systematically and routinely applied them. In this article, we examine the obstacles to alternative fee arrangements faced by both corporate counsel and by law firms, and how those obstacles can be overcome in practice. We review the pros and cons of alternative billing arrangements with special emphasis on DuPont's experience in encouraging their use with its primary law firms and suppliers.

For the past several years DuPont has experimented with various forms of alternative billing, and both the company and its law firms and suppliers have learned valuable lessons and gained insight into what works well and what can be improved. One lesson is clear: alternative fee arrangements, if properly structured, can mutually benefit clients and law firms. The trend is unmistakably toward greater use of alternative fee arrangements.¹ This article demonstrates why inside counsel should use alternative fee arrangements and how they can further a partnering relationship between the corporation and outside counsel.

Why Use Alternative Billing?

The disincentives created by hourly billing have been well documented.² Hourly fees-especially when used in conjunction with the traditional law firm pyramidal staffing model-foster inefficiency by rewarding those who take longer to perform tasks. Under the hourly fees paradigm, law firm profitability and partnership shares are tied to numbers of hours billed; no concrete incentive exists on the law firm's part to resolve cases at an early stage, much less efficiently; and all the risks of protracted and costly litigation are placed squarely on the client. In short, the law firm gets paid no matter how inefficiently it performs and regardless of outcome.

Alternative fee arrangements, though not a panacea, do provide a mechanism for law firms and clients to redefine their relationship in fundamental ways that can prove mutually beneficial. Corporate legal departments are under increasing pressure from their clients to reduce costs and justify expenditures. Hourly rates, with their built-in inefficiencies, are a prime target for reform. Past efforts at cost control-for example, managing costs by micromanaging specific tasks and time entries billed by outside counsel-have achieved at best relatively modest savings at the expense of undermining any true partnering relationship. Far greater savings are likely to be gained by creating billing arrangements that incorporate mutually defined objectives, provide incentives to obtain these common objectives, and encourage efficiency in getting there.

In its most progressive form, an alternative fee arrangement would provide for mutual sharing of risks and rewards. No longer would the client be the sole party to risk cost overruns or a "bad" result. The law firm would share those risks in some manner, while at the same time sharing the potential rewards for attaining clearly defined business objectives. In this paradigm of mutual risk and reward sharing, the interests of client and law firm are aligned toward a common goal. If properly structured, an alternative fee arrangement should result in a win-win scenario for client and law firm: the client would achieve a desired outcome, while the law firm would be rewarded for achieving that outcome. Alternative fee arrangements should not be thought of as zero-sum games in which someone wins and another loses.

Even in their less ambitious forms alternative billing arrangements can produce positive results for the corporate client. To the degree that negotiating an alternative fee arrangement requires a focus from the outset of the case on assessing strategy and evaluating settlement v. trial, the process itself is likely to discipline early case assessment and strategic budgeting, thereby providing yet an additional cost benefit. All these concepts-strategic assessment of risks, disciplined budgeting, risk/reward sharing-are routinely applied in our clients' businesses,³ and no less is expected of us.

Alternative fee arrangements affirmatively respond to these internal corporate pressures and provide a clear opportunity to tie legal fees to value. They are, moreover, a logical next step in the progression toward a true partnering relationship between client and law firm.

Obstacles to Alternative Fee Arrangements

For all their advantages, alternative fee arrangements have seen limited action. Both corporate clients and law firms have been slow to use alternative fee arrangements because they are novel and do not come with clear ground rules. What is preventing increased use of alternative fee arrangements?

Fear of the Unknown

One possible explanation may be that hourly rates-despite their shortcomings-provide a certain level of comfort and at least a superficial degree of historical predictability. The number of hours worked on a file can be easily measured and both parties can negotiate an acceptable hourly charge in advance. When added to the mix, case budgets can be used to increase the predictability of the costs. Based on decades of experience with hourly fees, however, it is fair to say that these perceived advantages are illusory even in the best of circumstances.⁴

Corporate counsel may fear that alternative fee arrangements would result in disproportionate profits for law firms. Many corporate counsel lack a full understanding of law firm economics. Also, a fear that outside counsel would cut corners may inhibit corporate counsel from relying on alternative fee arrangements. There may be a lack of experience with alternative fee arrangements, as well as a lack of structure or process for analyzing the need for or feasibility of such arrangements. Corporate counsel also may lack data on the market value of the work covered by an alternative fee, and this lack of information may increase their fear of the unknown. With an understanding of law firm economics and confidence in outside counsel's professionalism, these obstacles fall. Paradoxically, under most alternative fee arrangements, inside counsel has less need to micromanage. In fact one advantage of alternative fee arrangements in our experience is that in-house management time is reduced.

Some corporate counsel have found, however, that they can achieve the benefits of alternative fee arrangements by using traditional hourly billing and making the most of their close working relationships with outside counsel. For example, Mark Evans, general counsel of Perrier Group of America, does not see the need for alternative fees because of his "intensely close" partnering relationships with outside counsel. Evans concentrates on preventing litigation, but when it occurs, he becomes closely involved. Rather than using alternative fee arrangements, he sets a budget early in the case and expects outside counsel to stick to it. Evans says that if he adopted alternative fee arrangements, he would be concerned that he would not have the "full buy-in" of outside counsel and that outside counsel might assign the litigation to inexperienced lawyers.⁵

Fear of Risk Taking

Alternative fee arrangements, particularly the incentive billing variety, require a willingness to take some risks. How much risk is entirely up to the parties. Law firm partnership agreements may even provide an obstacle to placing some portion of fees at risk.

"Lawyers are risk averse," says Skip Herman of Bartlit, Beck, Herman, Palenchar & Scott. Herman and his firm pioneered the use of alternative billing arrangements and are among the leading proponents of them. According to Herman, "almost anything is better than a system that pays twice as much when it takes twice as long to do something, instead of one that pays twice as much when you do a good job. Almost any variation on the straight pay-for-time system is a plus when the goal is to have the lawyers' interest more aligned with the client's."⁶

What the parties usually fail to appreciate is that the degree of risk is solely up to the parties. The key is informed risk taking. With some modest preparation, the risks can be defined. Ironically, corporate clients-who alone bear the risk of cost overruns and poor results under hourly fee arrangements-are probably more resistant than law firms to enter into alternative fee arrangements.

Lack of Trust

In whatever form it takes, an alternative fee arrangement requires an element of trust on the part of both parties. Trust is an essential component. Indeed it is the foundation on which an innovative billing arrangement must rest. Without trust-whether in the form of a long-standing history between the law firm and client or in the form of an established partnering relationship-the successful negotiation of an alternative fee arrangement that is beneficial to both sides in the arrangement is unlikely.

Overcoming Outside Counsel's Reluctance to Use Alternative Fee Arrangements

Corporate counsel will expect their outside counsel to respond to changes in the market for legal services. Rather than clinging to straight hourly billing, which clients once demanded, outside counsel must recognize the new demands of sophisticated corporate counsel. Outside counsel must operate like a business, and like any business, they must respond to their customers' desires.

Sophisticated outside counsel will see these changes as a challenge, not a burden. The law firm will have an opportunity to meet current client desires with business-oriented legal services. Alternative fee arrangements often will improve a law firm's control over the services it provides, because the law firm will have an incentive to control those services, whereas straight hourly billing provides no incentive to control inefficiencies.

Improving the law firm's margins on results delivered is another potential advantage of alternative fee arrangements. Depending on the arrangement, a law firm can have the opportunity to obtain a significant premium payment for a "successful" result (as mutually defined in advance by law firm and client), so that the law firm's total compensation for the matter could exceed what it would have received under a straight hourly billing method.

Nor should outside counsel ignore the "psychic income" of a successful result under an alternative fee arrangement. In addition to the feeling of accomplishment in having achieved a successful result, outside counsel has the satisfaction of positive tangible recognition for good work from a satisfied client.

A reluctance to let go of some of the law firm's hourly rate "annuities" (in other words, the fairly predictable income stream based on hours worked and billed to the client) may be a difficult psychological block. Further, outside counsel frequently do not have data available on the law firm's costs to produce the required legal services. This lack of information often prohibits outside counsel from entering into an alternative fee arrangement based on an intelligent assessment of the risks involved. In short, this fear of the unknown combined with inertia prompts many risk-averse lawyers to cling to hourly rates.

Law firm compensation systems may also discourage use of alternative billing. "Many law firms are structured so as to resist fee arrangements other than the straight hourly rate," according to Skip Herman, "because anything other than the normal approach could [have an] impact [on] partner compensation in many firms." Herman believes that fixed fees in particular have seen limited action because they can threaten the pyramidal structure of many law firms. "Fixed fees reward small teams of highly experienced lawyers, while hourly fees reward larger teams of less experienced lawyers."⁷ Aileen Leventon, a partner in the PricewaterhouseCoopers Law Firm and Law Department Consulting Group, concurs.⁸

Finally, outside counsel may be reluctant to enter into an alternative fee arrangement because of a fear of being micromanaged by inside counsel. Even when there is no change in the degree of inside counsel management control, a lawyer who has relished working independently may chafe at the necessary partnering involved in an alternative fee arrangement and see it only as interference when he or she is required to commit to defined costs. A lawyer who is used to making all or most of the strategic and tactical decisions on a matter will have to get used to sharing these responsibilities under an alternative fee arrangement. The need to be efficient, at least to the point of meeting agreed upon cost constraints in an alternative fee, may stifle poorly prepared outside counsel contemplating alternative billing.

Figure 1--"Early Case Assessment: Employment Litigation"

The Alternative Fee Arrangement in Concept

An alternative fee arrangement will be successful for outside counsel and client if it:

gives outside counsel incentives to provide quality work and to strive to achieve the client's business goals;

promotes efficiency in the work and helps contain legal costs;

is flexible and responds to changing circumstances; and

enhances the relationship between the client and outside counsel.

Taking the alternative fee arrangement to the next level of incentive-based billing, the ideal incentive billing arrangement will:

provide for nontraditional billing;

provide for sharing risks and rewards;

build in incentives for successful performance;

define success in terms of ascertainable and objective criteria (such as time of disposition, stage of disposition, trial outcome, amount of settlement or verdict, or other such criteria);

(in some cases) be tailored to recognize individual team members' contributions; and

help the client and outside counsel better understand the types of matters that lend themselves to incentive-based billing arrangements.

Counsel should study alternative fee arrangements that have worked in the past, which can be modified to suit the particular situation. The type of alternative fee arrangement chosen should take into account the following two important questions:

What is the client's goal with respect to the litigation?

How can this goal be defined and achieved in terms of a billing arrangement that allows for the sharing of risks and rewards between attorney and client?

Figure 2--Focus on Goals to Develop Win-Win Fee Arrangements

How to Pilot Alternative Fee Arrangements

To overcome the various obstacles to alternative fee arrangements, inside and outside counsel must work together to lay the necessary groundwork for a successful partnering relationship. Although an alternative fee arrangement may be reached on any kind of case, a single case, or a large group of cases, it makes sense to start with fairly predictable, repetitive cases; for example, slip-and-fall cases for a retail store chain. Outside counsel should evaluate the cases it has handled in the past and gather pertinent data that will be needed to structure the alternative fee arrangement, such as average case cycle time, amount spent in the discovery phase, success in dismissing cases or obtaining summary judgment, frequency of trial, and cost of trial.

It will be important to determine the cost drivers of the litigation. In other words, what are the aspects of the litigation that make one case more costly to litigate than another? It may be motions practice in a class of cases in which motions to dismiss or for summary judgment are frequently used. It may be depositions in a class of cases in which gathering the testimony of numerous witnesses is necessary. Whatever the cost driver, inside and outside counsel need to consider it carefully and think creatively about ways to achieve the desired result at a reduced cost. Outside counsel should have a brief bank in which previously filed and appropriate motions and briefs are available for adapting to new pleadings. If the litigation is repetitive, then much of the filing will be as well. If depositions are driving the cost of litigation, inside and outside counsel might consider whether fewer depositions can be taken. For example, some third-party witnesses could be interviewed, if willing, instead of deposed, with a resulting lower cost. The cost of depositions can be reduced by making an intelligent and informed analysis of the risk involved in not taking depositions of certain witnesses. Rather than turning over every stone in an effort to find every possible piece of relevant information, the client may be willing to take a small risk of an unpleasant surprise later in the litigation in exchange for cost savings now.

In structuring an incentive-based billing agreement, counsel should clearly define the discount or hold back (what counsel is putting at risk) and the performance bonus or premium (what the client is putting at risk). Ideally, the agreement should be written in such a way that, if the performance award is paid, it is mutually beneficial for outside counsel and client. In other words, the client thereby obtained a desired result in a timely and cost-efficient manner, and outside counsel was rewarded for its willingness to share in the risks of an unfavorable outcome. In that case, both the client and outside counsel had the same incentives to obtain the desired outcome. In the event that the litigation is not a success, both also shared the economic risk. In this way, the interests of attorney and client as to the disposition and costs of the litigation are fully aligned. More importantly, the overriding objectives of the client are most likely to be met.

Some common alternative fee arrangements are:

Flat Fee or Fixed Fee Arrangements -- These work best in routine, repetitive, or predictable types of litigation or legal work, such as workers' compensation cases, observes Robert F. Sharpe, Jr., general counsel of PepsiCo.¹⁰ A performance bonus may or may not be included. It may be "phased," for example, a fixed fee is paid through an initial investigation phase, after which another form of hourly billing or alternative billing takes effect. Marriott International has been "very pleased" with a flat fee arrangement for the initial 60-day investigation phase, during which outside counsel is expected to pursue settlement of the matter, says Joseph Ryan, general counsel. These arrangements will typically build in some type of safety valve to account for unforeseen contingencies that could have a wide impact on fees in one direction or another.¹¹

Example: Outside counsel will do all legal work for the __________ litigation at a fixed fee of $______ per month.

Discounted Fees in Return for a Performance Bonus (also called Partial Contingency Billing Arrangement) -- In concept, outside counsel would provide a discounted rate (usually a percentage discount from their normal hourly rates) in exchange for a performance bonus or success award. The base rate from which the discount is calculated must be defined. The performance award can be defined in any number of ways, such as a percentage of the fees saved below budget, a multiple of the discounted fees, or a specified dollar amount. The performance award might also be paid in stages rather than on the happening of a single event.

Joia Johnson, vice president and general counsel of Rare Hospitality International, feels strongly that outside counsel should share in the client's risk. Especially, she says, if outside counsel makes the professional recommendation that the case should be tried rather than settled, they should be willing to risk part of their fee in the event of an unsuccessful outcome.¹²

Success could similarly be defined in various ways, such as time of disposition (for example, dismissal or settlement by a specified date), type of disposition (summary judgment, voluntary dismissal), favorable judicial rulings (for example, denial of class certification, forum non conveniens, statute of limitations, preemption, or other dispositive rulings), disposition before fees and costs reach a specified level, and the like.

Example 1: Outside counsel discounts its normal hourly rates by __percent ($___). In return, the client agrees to pay a performance bonus of (for example, one or two times the discounted fees, a capped amount, or a percentage of fees saved from those budgeted) if the client wins (for example, case is dismissed, summary judgment is granted, jury verdict is in the client's favor, settlement is below a certain amount, jury verdict is below a certain amount, the client's liability is apportioned below a certain amount).

Example 2: Outside counsel agrees to a reduced fee or fixed fee through an initial phase (a 60-day period during which an initial investigation is done or through a budgeted period). In return, the client agrees to pay outside counsel certain incentives if the case is disposed of or settled satisfactorily during this period or is resolved below the budgeted amount. The incentive payment might be based on some portion of the regular budget.

Example 3: Outside counsel agrees to a reduced rate until some specified event occurs (for example, ruling on class certification or summary judgment hearing). In exchange, the client agrees to pay an incentive award if the outcome of the event is favorable to the client (for example, class certification is denied, summary judgment is granted).

Example 4: Client prevails on motion to dismiss a three-count complaint in trial court, and plaintiff appeals. Outside counsel and client are fairly confident of affirmance on counts two and three, but less so on count one. Outside counsel estimates a reasonable flat fee for research, drafting the brief on appeal, and preparing for and making oral argument, if any, based on reasonable hourly rates. Outside counsel agrees to a reduction of the reasonable flat fee, with a premium of twice the reduction to be paid by the client if the appellate court affirms the dismissal of all three counts.

Blended Rates -- All lawyer time is billed equally, regardless of seniority. Theoretically, this billing arrangement encourages use of less senior level lawyers, which may or may not be preferable. It may also mean that the best talent is not working on the case. Marriott's Joseph Ryan, for example, says that he has had an unsatisfactory experience with blended rates. The law firm only assigned to the matter those lawyers whose regular hourly rate was at or below the blended rate, and more senior lawyers were unwilling to engage in significant supervision.¹³

Volume Discounts -- Hourly rates are based on the volume of legal work sent to the law firm by the client. These are a good first step, but they are only a first step in forging a billing arrangement based on risk/reward sharing. PepsiCo's Robert Sharpe points out as well that inside counsel should be careful not to send work to a law firm in exchange for a volume discount when another law firm really is better equipped to handle the job.¹⁴

Capped Fees -- A cap or maximum is set above which the client no longer pays fees. Depending on where the cap is set, this form of billing arrangement can encourage efficiency, but it can likewise be risky for outside counsel if the fees are significantly misjudged at the outset. A safety valve provision can alleviate this concern (for example, "If fees exceed the cap by ____ percent, the parties agree to revisit the fee arrangement."). This type of fee arrangement can be used in conjunction with incentive bonuses for meeting specified targets.

A Combination of Any of the Above -- Not infrequently, several of the foregoing billing arrangements are used in combination.

Example 1: Outside counsel gives client a volume discount in return for performance awards based on various criteria (fees below a specified target, early disposition, control of local counsel fees, and so on).

Example 2: Outside counsel gives client a fixed fee through some predefined period (an initial investigation phase) and then reverts to hourly billing.

Example 3: Outside counsel gives client an hourly rate through an initial phase and then reverts to one of the incentive-based billing arrangements.

Example 4: Outside counsel and client agree on a budget for an initial phase (or for the entire case), and in return client agrees to pay law firm a bonus if the fees are below budget (the bonus might be a percentage of the savings under budget).

Determining an Appropriate Fee

What is a reasonable fee for legal services in a particular litigation? The parties might look to the analysis used by federal courts in awarding attorneys' fees. The court first determines a lodestar figure by multiplying the number of reasonable hours expended by a reasonable rate. In deciding what constitutes a reasonable number of hours and rate, the trial courts generally look at the following factors:

time and labor expended;

novelty and difficulty of the questions raised;

skill required to properly perform the legal services rendered;

outside counsel's opportunity costs in pressing the instant litigation;

customary fee for like work;

outside counsel's expectations at the outset of the litigation;

time limitations imposed by the client or the circumstances;

amount in controversy and the results obtained;

outside counsel's experience, reputation, and ability;

undesirability of the case within the legal community in which the suit arose;

nature and length of the professional relationship between outside counsel and client; and

attorneys' fee awards in similar cases.¹⁵

This analysis essentially starts with a "reasonable" attorney's fee using the straight billable hour method, then modifies the fee based on the trial court's hindsight view of the character of the litigation and the law firm's performance. In negotiating an alternative fee agreement, however, the parties need to consider these factors at the outset of the litigation and use them to determine a reasonable fee based, not on the billable hour alone, but on the parties' expectations of where the litigation may lead.

Ethical Issues in Alternative Fee Arrangements

Despite the fact that commentators have advocated alternative fee arrangements as a way of eliminating some of the ethical issues that can be associated with hourly billing,¹⁶ practitioners need to be aware of the ethical constraints on certain alternative fee arrangements. The courts and state bars have not allowed complete freedom of contract in this area. Even if the client is a sophisticated consumer of legal services, is fully informed of the details of the arrangement, and seeks independent counsel before entering into the arrangement, any alternative fee arrangement must comply with applicable ethics rules. And because the ethics rules vary from state to state, lawyers considering an alternative fee arrangement must check the appropriate rules.

Most importantly, all fees must be "reasonable" and fully explained to the client. Whatever the fee arrangement, lawyers must continue to represent their clients zealously even if the arrangement becomes unprofitable in a particular matter. Although ethics codes permit modification of fee arrangements, changing an arrangement on the eve of a trial or other critical juncture risks allegations of duress. Lawyers must also follow their states' rules on fee splitting, doing business with clients, and acquiring an interest in litigation. Some arrangements may be deemed sufficiently contingent on the outcome to trigger the specific rules that often govern contingent fees. All of these possible problems are easier to perceive and address if lawyers and clients put their fee agreements in writing. Some states require written fee agreements, and all lawyers should consider them.

Lawyers must also follow their states' ethics rules governing the handling of client funds. Unless a payment is considered a true retainer (made to secure a lawyer's availability, and therefore considered immediately earned when paid), any amount paid for future work normally must be placed in the lawyers' trust account-with the money withdrawn only as earned.

There are no insurmountable ethics problems involved in alternative fee arrangements, and most bars have been hospitable to alternative fees. For instance, the ABA has explicitly approved the use of fixed fees¹⁷ and reverse contingent fees¹⁸ as long as a particular fee is reasonable and the client agrees to the arrangement after full disclosure. These opinions bode well for bars' review of other alternative fee arrangements.

Conclusion

Given the barriers, the risks, and the uncertainty, is it worth the time and effort to negotiate alternative fee arrangements? The early evidence suggests it is. More importantly, the traditional hourly rate is becoming less acceptable to sophisticated business clients as a fair measure of the value of legal services. In what other environment is the provider of services paid no matter how inefficient it was in getting the job done and no matter how poor the results it attained for the client?

Both client and law firm can take some basic steps toward greater use of alternative fee arrangements.

Establish a Trust-Based Relationship

Without trust, alternative fee arrangements cannot be successfully implemented. It is the building block without which an alternative fee arrangement cannot be supported to any real extent.

Be Prepared to Accept Some Risk

By definition, alternative billing entails some degree of risk to both parties. In our experience some firms and clients ostensibly willing to explore alternative billing in fact want to place all the risk and uncertainty on the other party. They miss the point. Both corporate client and law firm must accept at the outset that not all alternative fee arrangements will be successful. Both should view the alternative billing arrangement (whatever its outcome) as part of their overall relationship. It should be one step in an evolving relationship, not an end in itself. Viewed in that light, the parties can learn from their experiences and feel free to continue experimenting with new arrangements.

Reward Efforts

Corporations must provide incentives (or at least remove disincentives) if the goal of increased use of alternative fee arrangements is to be met. Corporate clients should consider alternative fee arrangements in the annual performance review of inside counsel. Inside counsel should be on notice that use of alternative fee arrangements is encouraged and expected. Their use should be recognized and rewarded. Corporate management must recognize these inherent risks and avoid second-guessing and penalizing attorneys who are willing to be innovative. The corporate client can also provide incentives for outside counsel by making it known that the company is willing to agree to premium payments for superior performance, and by recognizing and rewarding law firms that are willing to share in the risk taking. Skip Herman believes that clients will have to drive the change toward greater use of alternative billing. "The only way to make this happen is for the clients to demand it."¹⁹

Not all alternative billing arrangements will be mutually beneficial. Circumstances change, some events cannot be predicted, and any number of variables may undermine the value of the arrangement as initially envisioned.

Break Down the Fee Arrangement into Phases to Deal with Uncertainty

One way to overcome the concern over uncertainty is to break the fee arrangement into phases and deal with one phase at a time. For instance, the parties could agree to a flat fee or a reduced hourly fee for an initial investigation period to be followed by efforts to move toward another alternative fee arrangement for the next phase. This tactic is very helpful in getting past the fear of the unknown and the inherent uncertainty of litigation.

Just Do It

If the parties wait for all the relevant facts to be known and all the case history and cost data to be developed, the case will be over before discussions about alternative fee arrangements can begin. There is a point of diminishing returns beyond which additional information adds very little to the equation when balanced against the lost opportunity. A certain baseline of information is needed, to be sure, but judgments have to be made on less than the entire record if the parties are serious about trying alternative fee arrangements. The only way to learn what works and what doesn't is to simply do it; be satisfied with successful results and learn from the mistakes.

Keep It in Perspective

Alternative fee arrangements need to be seen as part of an ongoing learning process, an evaluation of sorts in innovative fee structures, not as a one-time experiment that the parties will not attempt again if one side is dissatisfied. They should be viewed in the context of an overall client/law firm relationship and in the context of an overall strategic billing goal. Success should be measured on a macro level, rather than on a case-by-case basis. The result should be better informed fee arrangements, more cost-effective legal services for the corporate client, and mutual sharing of risks and rewards.

Use Savings Clauses

Savings clauses can be used to ameliorate the risk of uncertainty. A properly drafted savings clause can prevent potential wide swings and avoid unanticipated windfalls to one party or another. They should not be used to eliminate all risks, but instead should allow a prenegotiated out if the unanticipated occurs.

Alternative fee arrangements can and should be a win-win solution to the inefficiencies of the billable hour system-a solution that both inside and outside counsel will find an improvement over the traditional fee structure. The client should regularly monitor and evaluate its alternative fee arrangements for effectiveness. Factors to be examined include cycle time ( the period between initiation of matter and conclusion), costs, and results. Proper use of alternative fee arrangements should result in shorter cycle time (especially if the fee arrangement gives outside counsel an incentive to bring the matter to a swift conclusion), lower costs, and better results.

Through a careful use of alternative fee arrangements and a spirit of partnering between inside and outside counsel, the in-house legal department can become what it should be: a business asset for the corporation.

Reprinted with permission of the authors and the American Corporate Counsel Association as it originally appeared: "Alternative Fees for Litigation: Improved Control and Higher Value," ACCA Docket 18, no. 5 (2000): 21-34. Copyright © 2000 by James Shomper, Gardner Courson and the American Corporate Counsel Association. All rights reserved. For more information or to join ACCA, call 202/293-4103, ext. 360, or visit www.acca.com.