Holdbacks as an alternative fee arrangement

An effective technique to create incentives for a law firm is to have the law firm hold back 15 to 25 percent of its standard-fee billings. The law department will agree to restore some or all of the held-back amount, depending the results achieved or the effort invested.

The law department can think of restoration as a reverse bonus. If the law firm achieves above average success, such as resolution of the matter in less than 15 months, it becomes entitled to a complete restoration of the held-back amount. If the outcome is less satisfying, the restored amount is correspondingly less (See my post of Aug. 4, 2007 on an example of a bonus arrangement.).

As I see it, a holdback might be recovered partially or completely by a law firm; amounts given up by a discount are gone forever.

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