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Fee arrangements based on future events can unravel if the law department changes goals

Risks exist for law firms who take on matters on a contingency-fee basis. As graphically described in Inside Counsel, Feb. 2008 at 16, if a client chooses down the road not to pursue what would make its law firm eligible for its contingency fee, tough luck for the law firm. For example, if a company agreed to pay a bonus for a victory at trial, the law firm receives nothing if the company settles the case before the trial concludes.

Because of this eventuality, both the firm and the department need to envision performance rewards that will make sense no matter what happens. That foresight takes time (See my post of Nov. 6, 2007: alternative fees take time.) but you want neither dashed expectations nor fee arrangements driving strategy (See my post of Sept. 28, 2007: be wary of incentives.).