Published on:

Reluctance by in-house counsel to agree to success-bonus arrangements with a law firm

Those who manage outside counsel often dislike success-based billing arrangements because they foresee that they will have to make a difficult decision at the end of the matter: what value do I put on the performance of the firm in relation to the outcome (See my post of Oct. 29, 2007 with data on the unpopularity of this billing method.)?

The outcome of the lawsuit, in terms of “success” for the company, might not lend itself to a clear conclusion as to benefit to the company (See my post of Aug. 1, 2006 on uncertain assessments of litigation.). Perhaps the unease of the responsible in-house arises because the decision of what to award must be comparative, and usually the arrangements are negotiated for unusual, important matters as to which the lawyer has had little experience. Perhaps the lawyer anticipates that the law firm is likely to be disappointed at the amount awarded it (See my post of Oct. 29, 2007 on dashed expectations of volume of work.). Maybe there are approvals internally and the need to defend the outcome and payment, especially if the bonus will be charged back. These reasons, and others, deter lawyers in companies from agreeing to success-bonus arrangements.

Likewise, imagine if a law firm dared to say to its client “pay us what you view the services were worth.” I fear that in-house counsel would be hugely uncomfortable if they were asked to make that decision. Whether they could do so would depend on their experience with like matters, but everyone would be blinkered and biased by their memory. Even more subtle, it would bring to the fore the difficulty of assessing the value of the legal service. Perhaps value delivered is like obscenity, and we all think we know it when we see it.