Litigators in a fix?

Among the many pieces of feedback I received to last month’s piece on pricing – thank you all – was a question I have been asked often. Can you apply fixed fees to litigation?

This is a hot topic. Google “fixed fees for litigation” and you are swamped by commentators and law firms claiming (some with more justification than others) to be “innovators” and “pioneers” in this area. There is a great diversity of firms, from heavyweights such as Nabarro and Addleshaw Goddard on this side of the pond, high-end boutiques like Bartlit Beck and Valorem on the other, to small regional firms and ABS providers. The Jackson reforms have been a catalyst; the fact that they apply to 90% of the UK market means they have influenced law firm behaviour on both sides of the border.

Can a law firm offer fixed litigation fees without putting itself at hazard? The answer (hey, I’m a lawyer) is yes and no. In anything but the simplest, low-value matter, no sentient firm should promise it will take a case for a finite sum, no matter how long and convoluted the journey and whatever the outcome. On the other hand, a variety of approaches can provide clients with greater certainty and value than the hourly rate, while offering firms the potential for enhanced upside and protection from disaster. The key considerations are prospects, scope, process and both the firm’s and the client’s attitude to risk.

Numerous firms are willing to have skin in the game, but none wants it badly burned. It all starts with prospects. Every firm which has successfully embraced alternative fee arrangements takes a forensic approach to due diligence at the outset, doing its utmost to assess prospects accurately, and calibrate the correct risk/reward ratio. The rise of external funders and after-the-event insurers has greatly influenced this process. Prospective clients are asked to complete formidable questionnaires, and top firms turn away up to a third of the cases offered to them.

What then of scope? In all cases, there needs to be an open discussion with the client, which results in clear agreement on what the firm will and will not do, what constitutes a material change of circumstances, and what are the client’s responsibilities. For example, the firm may reserve the right to revisit its fees if there are changes of party, significant increases in the number of witnesses, or new actions raised in the course of the main action. In-house teams can make significant savings by undertaking parts of the work themselves.

While the best firms have become expert at scoping, quality across the profession is inconsistent. So is the clarity with which the issues and cost implications are explained to clients. Too often, firms find themselves in the position of dodgy builders, trying to explain to clients why what the client thought was covered by an agreement made at the start is going to cost extra. More than one in-house counsel has told me they believe some firms try to make scoping agreements ambiguous deliberately, so they can low-ball in tenders, and then chisel extra fees when the inevitable “variations” arise. I think this may be true occasionally, but the problem is more often cockup: if it is conspiracy, it is a particularly good route to insolvency.

And so to process. The great American engineer W Edwards Deming, regarded by many as the high priest of quality control, once said: “If you do not understand what you are doing as a process, you do not understand what you are doing.” Thus it is for lawyers, contentious or non-contentious. Legal project management is a very large topic which I can only touch on here. The fundamental point is that being good at it is now every bit as important to a firm’s prosperity as knowledge of the law. Showing that you are makes a massive difference to service quality and pitch success. If you are thirsty for knowledge, I warmly recommend Legal Project Management, by Steven Levy, former head of legal technology at Microsoft.

Last but definitely not least, every proposal must be congruent with the client’s attitudes. Some insist on absolute cost certainty. A small and shrinking band will still pay hourly rates. Between these poles lie a multiplicity of attitudes to risk and reward which must be teased out in discussions so that clients are guided towards choices on fees, process and forum that are right for them and economic for the firm. This is crucial in all pricing discussions, but perhaps especially in litigation, where there is nearly always a perceived “loser”, even when the case settles, and greater potential for recrimination.

Every litigator has two judges. Both matter greatly, but ultimately, the one that really matters is the one who pays the bills.