Worried About Paying for An Attorney? Learn and Ask About Different Fee Types and “Hybrid” Options

If your company is a contractor or subcontractor for a U.S.-government project and you want legal assistance, you may be worried about the cost of attorney fees. That is understandable, as attorneys fees can indeed be expensive in the United States.  You may have heard of attorney hourly rates that exceed $500 or even $1,000 U.S. dollars per hour.  Sometimes, high fees are worthwhile and bring high value.  But, if you can’t afford a given fee, you can’t afford it. So, what do you do?

You should know there are different types of attorneys fees and options in the United States, some of which are  more affordable than you may think.  Below we discuss some of those attorney-fee types and options that could reduce your expense, including hourly rate, flat rate, contingency and hybrid fee arrangements.

First: a Note About Risk and Expectations

Before we discuss attorney-fee types, it is important you understand the concepts of (1) risk and (2) expectations, and how those factors weigh into the cost of attorneys fees.

An attorney may be willing to share some or all of the financial risk in your matter.  For example, an attorney may be willing to work on a contingency arrangement where you, the client, and your attorney identify a desired result (e.g. obtaining a settlement for money) and the attorney receives a fee only if that result is obtained.  An attorney working on a pure contingency arrangement assumes all the financial risk in the matter, and is paid the attorney fee only if your matter is successful.

If an attorney works on a “hybrid” arrangement (detailed more below) where part of the representation is on contingency, and part is paid out-of-pocket by you (e.g. you pay reduced-rate hourly fees), then this is a sharing of financial risk by you and the attorney.  This type of hybrid arrangement would require some financial investment by you, although the investment may be far more affordable than market-rate hourly legal fees.

Another factor that affects your legal fees is your expectation.  If you have very high expectations– for example, if your company is in a lawsuit or litigation where it is possible you could win $10 million, and you also expect to win that full $10 million without settling for less– then your high expectations will have a direct relationship to the attorney’s workload and fees. If you are paying hourly legal fees, your expectations for a high award of money will cause your legal matter to last longer (because compromise or settlement before a legal decision is not possible), which will in turn cause far more attorney-work hours and fees to accumulate.

Expectations can also cause an attorney who works on contingency to refuse to represent you, or to stop representing you, because your expectation of a perfect or near-perfect result places more risk on the contingency attorney that she or he will have to work longer, yet possibly never be paid anything for that extensive work in order to meet your high expectations.

Always keep in mind the above concepts of risk and expectations when you are considering possible attorney fee arrangements.  If you are willing to compromise and  assume some level of risk, or reasonably reduce your expectations, then such compromise may enable an attorney to offer you a more affordable fee structure.

Hourly Fee Structure

An hourly-based attorney fee is where an attorney charges a set hourly rate for the work performed on your case.  The rate is a known/certain number.  However, it is uncertain how many total hours and fees will be charged so you are not sure how much you will end up spending on your case.  If you are considering an hourly attorney fee arrangement, be sure you ask the attorney for an estimated range of what hourly fees typically cost for a matter like yours.  The attorney will not be able to guarantee an amount because the future number of hours simply cannot be predicted.  The attorney, however, should be able to give a general idea and estimate, so you are not later surprised with the cost of the fees.

Remember, as discussed above, your expectations can influence the amount of time your attorney works on your case and how much you will end up paying. Also, keep in mind, in an hourly arrangement, you bear all the financial risk.  If your hourly-paid matter does not achieve a successful result, you can lose money overall, since you are paying fees based on attorney time and work, not based on results.  With that said, an hourly rate could turn out to be in your best long-term financial interest, depending on the circumstances.  For example, the value of a 33% contingency fee for a matter valued at $50 million could turn out to be far higher than the fees you would have owed for the number of hours your attorney worked on your case under an hourly arrangement. In such a situation, you might prefer to take on more financial risk and pay hourly fees instead of a contingency arrangement.

Most attorneys in the United States charge based on an hourly rate.  However, many attorneys (even some who advertise only hourly arrangements) will consider different fee structures, if they think another proposed arrangement is fair.

Flat Fee Structure

A flat fee is a specific fee charged for a fixed amount of work.  For example, an attorney may charge a flat fee of $2,500 to prepare a contract.  Or another attorney may charge $5,000 per month for a case that is in litigation, until the month that litigation ends.  The numbers in these examples are not actual fees, and simply numbers for the purpose of explanation.  Actual flat-fee charges vary and depend on the circumstances of the case.  The main aspect of a flat-fee arrangement is that both you and the attorney have certainty about (1) the exact amount of the fee and (2) the exact scope of legal work being done.

The financial risk in a flat-fee arrangement is shared.  The amount of time in a legal matter can vary a great deal, so it could turn out the attorney does a larger-than-usual amount of work to achieve an objective (thus making the flat-fee a financial loss for the attorney and a bargain for you), or a less-than-usual amount of legal work (making it a better deal for the attorney).

Flat fees are best for transactions with limited-term work that can be predicted with some degree of confidence.  For example, the time it may take to complete a limited set of formwork is more predictable than the time it may take to complete a matter that is in litigation– litigation can involve many variables, and can take from months to years to complete.

Contingency Fee Structure

A contingency fee is a type of attorney fee where an attorney is not paid any fee unless you are successful in achieving a defined result.  If the result is achieved, then the attorney is paid a fixed amount– typically, a percentage of money that is “won.”  Contingency fees are most commonly used in lawsuits (litigation), where money can be won as a result of a legal decision or as a result of a financial settlement with the opposing party.

Typically, for a case on pure contingency, a percentage of 33% to 50% is to be paid to the attorney from the amount won.  But a contingency arrangement can be assigned any percentage the parties agree to, and can be based on any objective or result the parties agree to trigger the payment of attorney fees.

Here is an example of a contingency fee arrangement: An attorney agrees to work on a 40% contingency-fee arrangement for a contractor company who wants to file a lawsuit against the US government. One year into the lawsuit, the contractor/client and the U.S. government agree on a financial settlement that resolves and dismisses the lawsuit in exchange for the US government paying the contractor $500,000.  In this example’s 40% contingency arrangement, the attorney would be paid $200,000 (40% of the $500,000 settlement/won amount), and the contractor would be paid $400,000 gross (60% of the total).  At that point, the hourly value of the attorney’s work may be less than $200,000, and the contingency arrangement could have been a worse financial arrangement for the contractor-client than had an hourly arrangement been chosen.  With that said, the contractor would not have had to pay hourly legal fees along the way– often thousands of dollars per month during litigation– and assumed the expense, risk, and concern of having paid those fees. Because the attorney bears all of the financial risk for working on the legal matter, the attorney gets the benefit if the case is resolved for fewer hours of work than expected.

“Hybrid” Structure

A hybrid arrangement is a mix of several of the fee types above. One hybrid arrangement the attorney authors have used is a mix of a contingency and hourly fee arrangement, where both the contingency percentage and hourly rate are significantly less than market rates. For example, a hybrid arrangement that fairly shares the attorney’s and client’s risks, and reduces the client’s out of pocket expenses, might be something like the following: a 15% contingency, coupled with an hourly rate that is one-half the attorney’s standard billing rate.

Of course, such an arrangement is not a one-size-fits-all proposition. There could be many different arrangements, and creative options, that could address both parties’ assessments of risks and expectations. The key is that the contractor-client and attorney talk over the issues above — including the risks, expectations, potential costs, different fee types and possibilities — and try to reach agreement on a fair and affordable fee arrangement.

If you have any questions about types of attorney-fee arrangements, or any of the information above, please feel free to contact us.

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