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A Qwest for fair billing arrangements – four arguments against fixed fees

Richard Baer, general counsel of Qwest Communications, recently made several points against fixed fees. He gave four reasons for his opposition to them in an interview by Corp. Counsel, March 2010 at 18. His points don’t persuade me.

Baer begins with the view that a firm operating under a fixed-fee agreement may be misaligned with its client’s goals “because the firm wants to do as little as possible to maximize its profit margins.” Yet just a paragraph before Baer argues that with hourly billing, good lawyers don’t gouge because they want to be retained over and over in the future. The same logic applies to firms that represent a company under a fixed fee.

Second, Baer frets that the firm might “use people who may not be qualified to do the work.” But a legal department that negotiates a fixed fee does not thereby abandon the choice of staff to the firm. Rather, as with hourly billing, it can select the core staff that it wants to see on the matter and propose a rough distribution of their time.

Third, in litigation where fees are fixed Baer worries that firms may try to settle cases quickly, “to increase their profit margins.” My understanding, unless the arrangement with the firm gives them a right to decide settlement payments and timing – which is highly unlikely – is that the company still holds the purse strings. If anything, a stingy client could balloon the firm’s investment of time under the set fee.

Baer’s fourth objections is that firms are “going to cut corners in order to maximize their margins.” Revealing more than a little distrust, Baer adds “I don’t know necessarily where they are cutting corners, I just know that they are.” With hourly billing, is padding bills not one of the counterparts of this presumed wrong? With any payment arrangements there can be chiseling, chicanery, and cheating.

In short, much as I admire Baer, I don’t agree with his objections. They are not risks unique to fixed fees and they are not without measures to address them.

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One response to “A Qwest for fair billing arrangements – four arguments against fixed fees”

  1. Richard Brzakala, Law Firm Manager says:

    Fixed fees for blocks of work are generally that – a set pricing arrangement for a predetermined set of task(s) at a negotiated price. More often these arrangements relate to ‘cookie-cutter’ type or commoditized legal work ( e.g. foreclosure, credit card collection reccoveries etc.) where the legal tasks involved reflect a standardized modus operandi, exclusive of legal complexities and involving minimal risk.
    Client expectations should be defined clearly and everyone should understand what the end objective is in getting the job done.
    Ulitmately it’s the responsibility of the law firm to manage the matter and make sure that they deliver results.
    How the law firm ultimately chooses to arrive at those results (i.e.staff the matter, manage their time or internal resources etc.) should not matter so long as the results meet the clients expectations.
    I would think the whole point of flat fees is to move away from having to review a multitude of repetetive line items on an invoice and/or concern oneself about being “gouged” on an hourly rate scale.
    If the flat fee is properly negotiated up front and the right legal partner is retained by the client, everything else (concerns about cutting corners or taking adavantage of the client) becomes a mute point.