Home > Outside Counsel > A portfolio view of “over-pay on some and underpay on others” unsettles some managers of outside counsel
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A portfolio view of “over-pay on some and underpay on others” unsettles some managers of outside counsel

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A for/against feature in Lit. Mgt. Mag., fall 2011 at 52, presented one argument against fixed fees that is not often expressed. A claims manager for Merchants Insurance Group dislikes fixed fees for groups of matters because he wants to pay the right amount for each one: “Inherent in the AFA concept is the idea that we will over pay on some cases and under pay on others, but it will all work out in the end. Purposefully not trying to get it right on each individual case is unsettling.” [I do not think he meant a pun on settlement.]

I disagree. The goal is to pay an appropriate amount for good outcomes over the entire portfolio, which means you do not deal one by one with cases. No one is deliberately trying to be wrong on what is paid for litigation defense; they are trying to be economical with time and money and not sweat the small stuff.

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One response to “A portfolio view of “over-pay on some and underpay on others” unsettles some managers of outside counsel”

  1. Steven B. Levy, Author of Legal Project Management says:
    August 22, 2011 at 11:59 am

    Many businesses not run by businesspeople come up short trying to understand the frictional costs of transactions. Since they don’t show up anywhere as separate “line items,” they are too often treated as zero or “N/A.” However, they’re very real. An hour spent doing task X is an hour that you cannot spend doing task Y — a/k/a opportunity cost.
    Ask your internal business clients about cost of sales. They will tell you that it takes different amounts of time to sell different customers, but they don’t normally price per customer based on the sales cycle.