"In the abstract, there are just as many choices as people have imagination," Kram says. "Lawyers are more willing now to consider alternatives." Here are a few options that might work for you:
- Start-up packages. When you are starting a business, you're short of money for just about everything, including legal services. Attorney Charles McCallum, managing partner of Warner, Norcross & Judd LLC in Grand Rapids, Michigan, notes that many law firms charge a set fee for a package of legal services, such as drawing up initial documents, attending meetings, preparing minutes, drafting ownership agreements and stock certificates, reviewing contracts, and offering routine legal advice. "That way, the client can budget for legal fees or go to the bank for financing," McCallum says.
- Fixed fees. You can also negotiate a fixed fee for a given legal project. Just as you'd take bids for construction work, you can talk to more than one attorney about what you'd like to have done and ask for a bid on the job. As with construction, though, the low bid isn't necessarily the best. Be careful to evaluate the attorney's reputation and the quality you'll get for your dollar. With a fixed fee, the lawyer has an incentive to be efficient, and the client understands the costs upfront. If it's a one-of-a-kind deal, however, or a type of work the attorney hasn't done before, fixed fees may be problematic because neither party knows how much time it will take and what it should cost.
- Volume discounts. If your business requires a large number of the same type of documents or services, you might be able to negotiate a volume discount with your attorney. A law firm with enough expertise in the area to produce what you need without much effort may be willing to offer a lower price in return for a larger quantity of work.
- Caps. Often the most trying aspect of legal billing is having no idea what a particular service will cost. Many attorneys are willing to estimate an upper limit so the business can establish a budget. Actual hourly charges might be less, but the attorney guarantees they'll be no higher.
- Contingent fees. Common for lawyers working on plaintiffs' lawsuits and on collections, a contingent fee arrangement shifts the risk to the lawyers: If they win the case, they receive a set percentage of the settlement, typically one-third. If they lose, they get nothing. This arrangement helps discourage frivolous lawsuits with no realistic chance of winning. Some lawyers now offer a contingent fee structure for transactional work, too, such as putting together a major business deal. If the transaction is concluded successfully, the lawyer gets a percentage of the deal.
"The goal is to move the transaction along rather than just grind out the hours," Kram says. "The lawyer agrees to assume part of the risk." Be careful, though. Some state bar associations frown on this arrangement as unethical because the attorney has a financial incentive to conclude a deal even if problems arise that could harm the client. Many lawyers avoid these arrangements because this essentially makes the attorney an investor in the deal.
- Partial contingency. In this arrangement, also known as "value billing," the law firm charges less than its normal hourly rate with the agreement that the client will pay a larger fee if the work is done faster or with a better result than anticipated. A lawyer who saves or gains you thousands of dollars through excellent work gets to share the windfall. Before agreeing to such a plan, though, make sure the lawyer will accept a lower payment if the result is worse than expected.
If you think an alternative billing arrangement could work for you, talk to your lawyer. "No client or lawyer should be embarrassed to talk about fees," McCallum says. "Raise the issue of fees early on, and be candid. If the attorney is not willing to be candid, that's a danger sign." Discuss what you're willing to pay to get a deal done, and ask for a guarantee that it won't go higher. When you've worked out a satisfactory arrangement, get it in writing to avoid unpleasant surprises when the bill arrives.