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Payments to firms based on Total Cost of Resolution (TCR)

A previous explanation of total cost of resolution (See my post of Dec. 10, 2006 on TCR with the example of BellSouth.) defines that term to include law department time, outside counsel and vendor costs, client time and costs, and settlement amounts spent on litigation.

If a law department has tracked its settlement costs for a few years, does the following billing arrangement based in part on TCR make sense? If the law department knows that over the past three years its settlements for the kinds of cases a certain law firm will handle averaged $1 million per year, then resolution of a similar set of cases at a lesser number entitles the firm to a premium. Thus, if the firm resolves 14 cases – the three year average – and the total settlements hit $.8 million, perhaps the firm would be entitled to 25 percent of the $200,000 below average.

If the total settlements hit $1.2 million, on the other hand, would the firm contribute 25 percent of the overage? Insurance could protect the firm (See my posts of July 25, 2005 about patent litigation insurance; March 23, 2006 #5 about EPLI litigation insurance; and April 23, 2006 about litigation insurance generally.).