Bottom Line Up Front

We are willing to share some risk and cost responsibilities with our clients. As our clients are selective in whom they choose as their counsel, we are selective as well in the companies we choose to work with because of the risk we assume under our fee structures.

Problems with Always Using Hourly Billing for Legal Services

We look at fee structures differently than most law firms. The industry standard for the pricing of legal services in business law firms is hourly billing—number of hours incurred multiplied by the hourly rate. While such a system does have its place, its predominance and overuse create a number of issues, both internal to the law firm and external to the law firm's clients. Below are some of these issues:

  • It does not link law firm success/failure to client success/failure
  • Without direction from the client, it does not encourage project or transaction planning and management by the law firm
  • It penalizes the efficient law firm
  • It encourages (or at least does not discourage) excessive "lawyering," attorney layering, and duplication of effort
  • The client pays for associate training and turnover
  • It does not reward the law firm for productive use of technology (in fact, in many cases, productive use of technology can reduce the law firm’s revenues)

Alternative Fee Structures

While traditional hourly billing is appropriate in certain contexts, especially in small projects or limited engagements, in the majority of situations, however, an alternative fee structure is a better option. Among others we have used, the following are some alternative fee structures:

Fixed Fee. The project, product, or service can be quoted in advance. This type of arrangement is appropriate for "pre-packaged products," the on-call general counsel service, and routine projects that are recurring or whose goals are assuredly attained and primarily within the control of AlphaTech.

Fixed Fee/Reduced Hourly Rate Plus a Success Fee. A project or transaction that has significant contingencies could be a candidate for a fixed fee charge (or reduced hourly rate), plus a success fee if the contingencies are met.

Fixed Fee/Hourly Rate Plus Value Adjustment. A project or transaction can be provided at a fixed fee or at an hourly rate and once the project is done (successfully or not), AlphaTech makes an up or down adjustment in light of whether the goals and objectives were met. After AlphaTech makes its adjustment, the client either accepts it or make its own adjustment—and that’s the bill. This approach is best used with a long-term continuing relationship and when there is considerable trust already established between the client and AlphaTech.

Equity. A special fee structure could be considered in the event AlphaTech (or an affiliate) invests in a client in the founder’s round or comparable early-stage financing.