Law Firm Success in the Digital Age: Innovative Services and Alternative Fee Arrangements

Photo by Marvin Meyer on Unsplash

Matthew Marino, Executive Editor, University of Cincinnati College of Law

I. Introduction

The Digital Age has posed unique challenges for law firms. With the rise of in-house legal work and process-savvy legal service providers, some law firms have considered pursuing other streams of revenue under alternative fee arrangements to stay competitive.[1] More law firms should follow suit and consider broadening the scope of their services and corresponding fee arrangements to satisfy clients’ demands for efficient, low cost legal services in the Digital Age. Although billable hours are necessary and commonplace for the appropriate services, alternative fee arrangements should be implemented for other services. This article will propose a new service law firms should consider offering under alternative fee arrangements: subscriptions for research guides, such as collections of articles, essays, litigation materials, reports, case summaries, and/or other information relevant, accessible, and helpful to clients. Research guides would analyze and/or summarize more specialized legal issues and be tailored to client’s unique demands, comprehension and/or skill level. Research guides would be billed yearly or as needed. This article will explain the changes in the practice of law through the Digital Age and then argue that law firms should offer subscriptions for research guides in response to those changes.

II. Background

A. The Practice of Law Has Evolved in the Digital Age.

The partnership model has long dominated the legal profession.[2] Traditionally, law firms used self-regulation to block other professionals from engaging in the practice of law or creating alternative business models to deliver legal services.[3] Prior to the late twentieth century, law firms dominated the practice of law, retaining exclusive authority over the economic terms of engagement with clients.[4] The profession remained “more collegial than competitive” until the 1980’s, when a lawyer named Finley Kumble poached clients from high-profile rainmakers from various white shoe firms. This marked law’s entry into the “free agent era,” causing “stress cracks in the partnership model’s foundation.”[5]

After the 2008 financial crisis, the legal industry’s free agent era intensified.[6] Corporate clients became more conscientious of monitoring outside counsel expenditures.[7] Today, some corporations have adopted policies restricting what outside counsel may bill and invited law firms to engage in competitive bidding for various projects.[8] Mark A. Cohen, reporting for Forbes Magazine, explained:

Legal practice—tasks requiring differentiated expertise, experience, and skills possessed by some lawyers—began to narrow. The delivery of legal services—everything else—expanded. Law firms no longer presumptively handled all facets of matters. They confronted a steady migration of high-volume, low value ‘legal’ work in-house and to tech and process-savvy legal providers.[9]

The high-volume, low value legal work referenced by Cohen previously made up a significant percentage of the work billed by law firm attorneys. Now, as this work shifts away from the desks of lawyers in favor of other work settings, the legal community is feeling increasing pressure to locate alternative streams of revenue.[10]

A 2016 survey conducted by Deloitte, a lead accounting firm, indicated that consumers of legal services sought legal service providers who were more tech-savvy and up-to-speed on global data and cybersecurity.[11] The survey also indicated that consumers wanted law firms to share information more effectively across jurisdictions.[12] However, under the traditional billable hour model, law firms typically cannot bill clients for general research and information-sharing. The billable hour model doesn’t neatly accommodate legal work that may be relevant and helpful to clients but unrelated to a specific matter for which the lawyer can bill. This has led to law firms adopting alternative fee arrangements for various services.

B. Overview of Alternative Fee Arrangements

Alternative fee arrangements are generally defined as any type of legal fee arrangement where a client pays an attorney something other than the traditional billable hour rate.[13] Another term for alternative fee arrangement is “value-based billing,” based on the idea that people pay for the value of the legal service rather than the time spent on a matter.[14] This section will discuss three types of alternative fee arrangements: (1) flat rates, (2) portfolios, and (3) blended rates.

i. Flat Rates

Under flat rate billing arrangements, lawyers charge clients a fixed fee for specific work.[15] Flat rates are popular for repetitive work, such as drafting a mortgage, deed, will, or trust agreement, because they provide consistency in the cost.[16] Lawyers may also charge clients flat fees for each response to a certain type of claim against their client, such as all Equal Employment Opportunity Commission (EEOC) claims; or a flat fee for each transaction in leasing arrangement.[17] Flat rates are less suitable for work with unpredictable costs, such as complex and time-consuming litigation where unanticipated billing normally occurs.

ii. Portfolios

Under portfolio billing arrangements, lawyers charge clients lump-sum amounts for legal services covering a wide body of work over a specified period of time.[18] Although similar to flat rate arrangements, portfolio arrangements cover work as needed rather than specific projects. Portfolio arrangements are beneficial to clients with influxes of specialized work.[19] Therefore, law firms will charge clients lump-sum payments for a lawyer’s availability as needed for the length of time the client anticipates it will encounter a stream of particular work.[20] For instance, a company prepared to be flooded with specialized contract work can employ an attorney with expertise in that area under a fixed fee each month for the attorney’s general availability.[21]

iii. Blended Rates

Under blended rate fee arrangements, partners and associates both work on a particular matter for which the client is charged one uniform rate.[22] This can be contrasted with the traditional billable hour model, in which a client will be billed variable rates depending on which attorney is working on their matter. These can be incorporated into hourly billing mechanisms,[23] but provide the advantage of a more consistent rate when compared to the wide variety of hourly rates charged by different attorneys in some firms.

III. Discussion

Alternative fee arrangements have gained more traction as a result of the growing sentiment among consumers of legal services that they should not pay hourly for work that is repetitive and low value.[24] As these services continue to migrate from law firms to other work settings, law firms should consider adapting to meet the standards of an evolving legal market by offering more expansive services under alternative fee arrangements.

Clients would benefit from general research relevant to their legal concerns, which is almost always non-billable under traditional models. Combining flat rate, portfolio, and blended rate fee arrangements, law firms should offer subscriptions to research guides. The guides would be billed yearly or as needed and outline numerous legal obstacles and corresponding solutions. Modern clients increasingly balk at the idea of paying hundreds or even thousands of dollars every time they have a legal question. By offering subscriptions to research guides, law firms can profit from general research and also strengthen the firm’s expertise in its practice areas. Therefore, law firms should consider offering subscriptions for more expansive and thorough research materials, such as collections of articles, essays, litigation packets, reports, case summaries, or other information in formats accessible to clients.

A. Firms should offer clients comprehensive research guides under annual flat rates.

As mentioned, flat rates are fixed fees for specific work. Firms should offer clients comprehensive research guides under annual flat rates. In-house counsel at large, globally-connected companies who require advising on challenges like global data and cybersecurity would largely benefit from comprehensive research guides outlining legal obstacles and solutions in those niche areas. Annual, comprehensive research guides would be less suitable for CEOs and business professionals. Rather, they would be tailored to in-house counsel. In-house counsel would then be more inclined to seek that firm’s representation on additional matters. The firm would retain and bolster steady business and the client would cut costs on its departmental budget—a major win-win for the firm and the client.

B. Firms should offer clients narrow research guides under portfolio arrangements.

As mentioned, portfolio arrangements refer to lump-sums paid for work as needed. Firms should offer clients as needed subscriptions for shorter, narrowed, and more accessible research guides applicable to specific laws or regulations. These guides would be accessible for all clients rather than in-house counsel at large, globally-driven companies. Under a portfolio fee arrangement for a subscription research guide, a client would secure an attorney’s availability over a stretch of time when the client anticipates that it will need continuous updates on a specific law or regulation. Subscriptions for as needed research guides would be suitable for clients without the financial capacity or desire for annual subscriptions; or without a legal department of its own to comprehend dense, annual research guides.

For instance, if the EPA was actively passing regulations governing the application of herbicides to crops, local farmers would benefit from easy-to-understand research guides summarizing the EPA’s latest regulations. EPA regulations are dense and difficult to understand without a law degree. Additionally, startups could subscribe to a firm’s “Registering Your Business For Dummies: Minus the Legal Jargon” catalogue. Some clients do not need continuous, annual updating on whole complex industries or practices, like the larger companies  with global reach. Rather, under a portfolio approach, the lawyer and client would negotiate a fair rate based on the difficulty of the research and/or anticipated time it will take to complete. The portfolio approach’s flexibility better accommodates clients with shorter windows of demand for a firm’s services.

C. A blended rate arrangement should be implemented to price the above-outlined materials.

As mentioned, blended rates refer to a single rate charged to the client for the number of hours spent by both partners and associates on an assignment. Research guides should be priced under blended rates reflecting the partners’ and associates’ anticipated time spent on and/or difficulty of the research. This would avoid the awkward and sometimes abrasive situation where a client sees some hours billed at $600 an hour and others billed at $100 for nominally the same work.

IV. Conclusion

With research guides, clients would not only benefit financially, but also feel less pressure that attorneys are gatekeepers to their legal wellbeing. This model promotes legal understanding, empowering clients by advising them to implement more preemptive legal policies to prevent issues from arising. It also empowers a firms’ attorneys to build knowledge and relationships around their practice areas and profit from doing so. To advance these goals, and satisfy clients’ demands for efficient, low cost legal services in the Digital Age, firms should offer yearly or as needed subscription services under a combination of flat rate, portfolio, and blended rate fee arrangements.

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[1] Mark A. Cohen, Are Law Firms Sustainable? It’s The Model That Matters, Forbes (Nov. 18, 2020), https://www.forbes.com/sites/markcohen1/2019/08/19/are-law-firms-sustainable-its-the-model-that-matters/?sh=6da04906628f.

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] See Id.

[7] Lisa G. Lerman et al., Ethical Problems in the Practice of Law 492 (Aspen Casebook Series, 5^th ed. 2020).

[8] Id. at 492-93.

[9] Cohen, supra note 1.

[10] Id.

[11] Deloitte, Future Trends for Legal Services 7 (Deloitte Touche Tohmatsu Limited, 2016).

[12] Id.

[13] Kristen Cook and Dawud Crooms, Alternative Fee Arrangements, Bloomberg L., https://pro.bloomberglaw.com/alternative-fee-arrangements-glossary/.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] See Cohen, supra note 1.