It’s no secret that the biggest fear any in-house legal department has with engaging outside law firms in handling matters, especially litigation matters, is the fear that there is no way to know when the billing will end, and how high it will be when it gets there. This can commonly be referred to as The Runaway Train Syndrome. Every in-house lawyer or general counsel reading this is nodding in agreement. They have met the enemy, and it is outside law firms charging exclusively by the hour, with no objective or external controls ensuring proportionality between the price paid, the result delivered, and the timeliness with which the result was delivered.
The concept of fee caps, and the notion that there is always, up front, a known end in sight, is not only the perfect antidote to Runaway Train Syndrome, it is also the Swiss knife of legal fees. Fee caps are so universally useful, in fact, that they can be put to use in billing arrangements ranging from traditional billable hour fee arrangements, to newer, alternative fee offerings to give those who pay outside law firms the ultimate in cost-certainty.
Set an overall fee cap on top of a billable hour arrangement, for example. Immediately, the outside law firm’s disincentive to accelerate an outcome disappears. The incentive has aligned much better with that of the client – to deliver the requested outcome within budget, and within a reasonable time. In this type of arrangements, the fee cap can be as simple as an overall matter total fee cap, or an annual fee cap, subject to an overall cap on the number of months or years a matter can be charged.
Fee caps can also be used in alternative billing arrangements to give the client some measure of clarity as to when a matter might reasonably be concluded, and what the total project cost is going to be. A good number of insurance clients I work with are using flat monthly fee agreements to retain me, and those fee agreements are always subject to an overall cap on the number of months for which they will be obligated to pay the flat fee.
Fee caps also do not eliminate flexibility to accommodate unforeseen circumstances as an assignment proceeds. Both sides should remain free to re-negotiate caps upwards or downwards as case circumstances change.
If you are not already using fee caps to accelerate outcomes and reduce your outside legal expense, you should give them a try to see how much cost-control they can deliver.