A piece in Met. Corp. Counsel, May 2011 at 30, points out advantages and disadvantages of fixed fees. One effect, according to Ashish Prasad, the CEO of Discovery Services,is subtle: “When negotiating a fixed fee, the client has an incentive to understate the complexity of the case.” Prasad cites Poonan Puri, “Taking Stock of Taking Stock,” 87 Cornell L. Rev. 99, 121 (Nov. 2001) in a footnote to this statement. If a law review article a decade ago wrote about this inclination to over-simplify a case to lower the fixed fee, then law firms must be alert to the risk. And, firms supposedly have experience with the case at hand, perhaps more than the law department’s lawyers. Their inclination to over-complicate the case may need a corrective!
Prasad also notes that clients push the scope of the work expected for a set fee – he uses the term “overextend” — and cites a LexisNexis survey as evidence. “One in five attorneys in private practice reported that their corporate clients overextended their flat-fee arrangements.” The LexisNexis State of the Legal Industry Survey (Fall 2009) at 23, drew on 350 lawyers in private practice. Note that 82 percent of the respondents did not identify this pattern.