Litigation next frontier for alternative fee arrangements

Private practice commercial litigation departments are no longer escaping client demand for certainty on fee arrangements, with some firms willing to trial and implement new billing models

Private practice commercial litigation departments are no longer escaping client demand for certainty on fee arrangements, according to Piper Alderman's Adelaide office managing partner Tony Britten-Jones.

A subdued local market in South Australia over the last 18 months has resulted in cautiousness among local clients to litigate, as they carefully weigh the potential benefits against the costs and risks.

“That’s forced us to look at ways that we can participate in dispute resolution with clients in a way that reduces their risk,” Britten-Jones told Australasian Lawyer. “It’s easier said than done.”

The firm has been working with clients on new modes of billing, such as ‘scenario-based charging’, where certain outcomes that may occur in the course of a matter are identified, and a fixed price is agreed with the client for different case components.

“Clients are demanding that we come up with alternative fee arrangements which give them more certainty and less risk,” Britten-Jones said.

The market in South Australia is such that firms have noticed this change in the past 12 months.

“Many clients are comfortable with the traditional time-based method of charging, particularly where they have established relationships with the particular lawyer or firm,” Britten-Jones said.

“But while there has been a move to a higher rate of fixed fee quoting in relation to transactional work for some years, the fact that alternative fee arrangements are now being considered in the litigation context is a new development,” he said.

Piper Alderman has in some cases volunteered these types of arrangements due to a reluctance among clients to litigate in circumstances where they previously would have. Britten-Jones said this was because client cost and risk analysis was not stacking up against the potential benefits.

Piper Alderman has been looking at ways to improve that analysis from the client’s perspective, without exposing the firm itself to undue risk on a matter.

“It’s often hard to get that right, and we are still feeling our way with it,” he said.

Britten-Jones does not see the imminent death of time-based charging, due to the amount of time lawyers spend on matters impacting greatly on what the eventual fee charged to clients will be.

“But it won’t be just a simplistic formula anymore, like 10 partner hours plus 20 associate hours at these rates equal this bill,” Britten-Jones said.

With the role of in-house lawyers becoming increasingly sophisticated, clients have become more likely to instruct firms on the budget they have for a particular matter, asking their legal service providers to take on the responsibility for managing it and resourcing it effectively within that budget.

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