A fixture of fixed prices, inflated cost estimates to cover a risk premium and contingencies?

“Fixed fee arrangements are fundamentally flawed. As soon as you discuss them with the firm, the numbers increase to include the premium and contingency, and hey presto, you’re paying more than you should have in the first place.” This cynical generalization glowers out of Legal Strat. Rev., Summer 2009 at IV.

The assumption is that hourly billing was the preferred arrangement in the first place (“more than you should have”). That assumption in turn implies that the firm bills honestly and the legal department directs work and reviews bills effectively. The assumption in the statement is also that the firm takes on more risk when it charges a fixed fee so it feels entitled to a premium for taking on that risk. Moreover, neither side has addressed carve-outs, articulated assumptions, or other ways to take account of contingencies (See my post of March 1, 2008: fixed or flat fees with 36 references.).

Although the quote reflects what some general counsel may think, it doesn’t reflect well that they think. It feels to me analogous to the common complaint of law firms that “competitive bids are wired.”

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