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“Broken deal” fee reductions for transactions that don’t get done

Some law departments negotiate fee arrangements with law firms whereby the department (a) pays upon the successful completion of the transaction and (b) pays a substantially reduced amount if the transaction does not go through. Commonly done with major acquisitions or divestitures, “busted” deal fees might knock a third or more off the fees the firm would have charged up to the point the deal fell through.

The delayed payment and success contingency mark these arrangements as alternatives to hourly billing done on the standard monthly billing, straight-up way. A firm that agrees to such broken deal payments, Boies Schiller & Flexner, enters into them with long-term clients, according to Law Practice Mgt., Vol. 35, Sept./Oct. 2009 at 35. Familiarity with each other makes sense in the context of these outcome-based fee reductions. Law departments can apply this concept more broadly, to a range of transactions.