The difference between capped fees and fixed fees

Law firms dislike capped fees because under them they can charge their normal rates but may not exceed the cap. Much more favorable are fixed fees, because then the law firm receives the agree-to amount regardless of how efficiently it accomplishes the tasks or goal. A capped fee might be “For this Hart-Scott-Rodino submission, our fees will not exceed $200,000.” The preferred arrangement, a fixed fee, would be “For this H-S-R submission, our fees will be $200,000.”

Unlike a fixed fee, a capped fee does not allow the firm to keep the benefits of efficiency, such as if less lawyer time is recorded due to the law firm’s investments in technology and knowledge management. Capped fees have no upside; fixed fees reward productivity and expertise.

For this reason, if requested, some law firms quote capped fees at as much as a 25 percent premium to their quote for a fixed fee. Law departments should take note of this possibility.