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By Spencer F. Smith

At the outset of any matter in which you need to retain legal counsel, you should memorialize the terms upon which you will be represented. This document is often referred to as an engagement letter and is typically drafted by your attorney after you have discussed and agreed upon the terms of the representation, which should include, among other things, the fee arrangement for the legal services being rendered. By understanding and agreeing upon the manner in which your lawyer will be compensated before the representation begins, you minimize the risk of future disputes over your attorney’s services.

Before agreeing upon the fee arrangement, you should be aware of the possibilities that exist, several of which may be appropriate for your situation. What follows is not an exhaustive list but includes some potential arrangements which are generally discussed in the litigation context.

Billing By The Hour
An hourly rate arrangement is one of the most common fee agreements. Each lawyer working on your matter keeps track of his or her time, and you are billed for that time at each attorney’s rate per hour. You should know each attorney’s billable rate, which often increase annually unless you reach an agreement that they will not, and the billing interval being charged (e.g., in six-minute segments). You should also receive regular invoices from your attorney detailing the tasks performed. Under an hourly arrangement, you are responsible for paying the attorneys’ fees during the representation. Depending upon your situation, alternative fee arrangements may be more appropriate.

Contingency Fees
One common alternative fee arrangement is the contingency agreement. Under this arrangement, the attorney is only compensated if you obtain a recovery in the case, and that compensation is a percentage of your recovery, which is usually between 33% and 40%. Contingency fees are commonly used in personal injury cases and can also be appropriate for business disputes. The client benefits because the lawyer finances the case and bears the risk of an unfavorable outcome. However, your lawyer could receive a substantial recovery after expending a minimal amount of time on the matter.

Hybrid Fees
A variation on the contingency agreement is the hybrid fee. In this arrangement, the attorney is paid a reduced hourly fee and takes a small percentage of any recovery. For example, instead of paying the attorney’s normal rate of $300 an hour, you agree to pay $150 an hour plus a 15% contingency. This arrangement can be appropriate if you can afford the reduced fees during the representation, and a significant recovery is likely.

Blended Fees
Another alternative is the blended fee agreement. In this arrangement, the client agrees to pay the same hourly rate for all attorneys working on the matter, regardless of whether it is a senior partner or a first-year associate, which can potentially reduce your fees. Before agreeing upon such an arrangement, there should be an understanding regarding specific tasks on which you expect the attorneys on the matter to handle. For instance, if you are retaining a firm because you want a senior attorney to take key depositions, you need to reach an understanding regarding your expectation before agreeing to a blended fee arrangement.

While there are other alternative fee arrangements, including discounted fees, retainer fees, and fixed fees, that you can explore with your lawyer, regardless of the fee arrangement that you agree upon, you should have an understanding of the options that are available and potentially appropriate for your situation.

This article appeared in the August 7, 2008 issue of The Journal Record.  It is reproduced with permission from the publisher. © The Journal Record Publishing Co.