Alternative Fee Arrangements
Pillsbury has long recognized that many clients are interested in exploring alternatives to the traditional “time and materials” pricing model used by most law firms. In response, we have developed and implemented a variety of alternative fee structures that, in practice, can work well for all concerned. Critical to this effort is understanding the client’s specific objectives and developing a fee structure that is in alignment with those objectives.
Among the alternative fee structures we have used are:
Percentage discounts from special rates using “tiered” or “volume” structure. Typically, these arrangements provide for a percentage discount that will increase based on the overall volume of work in a given calendar year. The advantages to our clients are (a) deeper discounts based on the volume, (b) better alignment with the clients’ business objectives, and (c) maintaining the flexibility to assign legal matters on a case by case basis.
Blended-rate engagements. This approach involves setting a single rate for all lawyers working on a particular matter. This allows clients to access our partner talent at a lower rate, which can help to manage the overall costs of the engagement. In some cases, we can offer a single blended rate for partners and counsel and a second, lower blended rate for associates. Blended rates can be used in transactional, litigation and some regulatory matters.
Discounts/premium structures for transactions. This strategy is used primarily in transactional practices where Pillsbury might offer a percentage discount in the event of a “broken deal,” with a corresponding premium for a “closed deal.” This allows for a significant discount—in effect, risk sharing—in the event a transaction is not completed, with the decisions about how and whether to proceed remaining solely in the hands of the client. Discount and premium structures work especially well for clients who have acquisition programs, and where the Firm is involved in multiple transactions over the course of the year.
Fixed fees for specific matters. Fixed fees provide budget certainty to our clients (although out of pocket expenses generally are not included). We work carefully with clients to define the scope of the matter, a detailed list of work included and excluded, and the expected duration of project—as always, the mutual goal is “no surprises.”
Fee estimate, coupled with substantial discount for excess fees. This approach involves the same approach as a fixed fee arrangement—working closely with the client to understand the scope of the project, and shared assumptions that are critical to developing a realistic estimate of the expected legal fees. If the costs are lower, the client retains 100 percent of those lower costs. But Pillsbury “stands behind” the estimate by offering a significant discount on fees for any hours in excess of the estimate. This approach requires that we work carefully with clients to define the scope and expected duration of the matter. Overall, it can create a strong alignment between the client and the Firm regarding the overall objectives.
Discounts for existing clients trying new sections or areas of legal service. Under the “Pillsbury Problemsolvers” program, the Firm offers existing our larger clients up to $10,000 of free work for an assignment in a new area. This arrangement works best in situations where the client is seeking a “second opinion” on a difficult issue or problem, or where there may be a new and challenging issue. Our clients get direct access to our top partners for help on their most challenging issues, with any work beyond the initial $10,000 for an area or matter undertaken only at the direction of the client.
Percentage discounts for existing clients trying new sections or areas of legal service. This accommodation extends to existing clients a special “getting to know you” percentage discount for using Pillsbury for a matter in a new area of law or geography where the client has not previously used the Firm, even if the initial volumes would not be sufficient to warrant such a discount.
Monthly retainer arrangements. We can arrange for the client to pay a monthly fixed amount for Pillsbury to handle a specified range of matters. This approach can work especially well for corporate clients, who want to be able to access the Pillsbury team for many matters each month, while maintaining budget certainty on a month-to-month basis. Typically, the arrangements are re-evaluated every six to twelve months to ensure that the retainer is appropriate for the overall work levels and fair to all parties.
Contingency matters. Under this approach, which most often happens in the litigation context, the Firm is compensated primarily on the outcome of the matter. Clients pay current out of pocket costs, but only a fraction of the current legal fees. The Firm has the prospect of recouping the remaining amount plus a premium, depending on the outcome of the matter. This arrangement can provide the client with a cost-effective way to pursue a matter, with a very strong alignment with Pillsbury as to the outcome.