One objection to fixed-fee arrangements: a risk that quality of work may decline

Often when I recommend a fixed-fee arrangement for a law department, someone will worry out loud that the law firm might shirk if it looks like the money will end before the matter. The quality or quantity of work may decline as the firm nears its fixed-fee ceiling. I disagree, and for three reasons.

First, if you have chosen a reputable law firm, it is full of capable, ambitious, and proud lawyers. By nature, training, and firm culture they strive to do well and it would be anathema to them to short-change a good client – the arrangement presumably has given the firm a fair amount of good work – just for dollars. After all, unless every lawyer is fully billable, there is no actual cash loss from written-off time. To cap the point, only the partners might feel the economic pinch; associates want to win at any cost.

A second reason is that the law firm presumably would like to re-enlist for a second round of legal services or cross-sell other services. If the first arrangement lost money, the firm will try to renegotiate more lucrative terms but in general if the bolus is large enough, it’s likely that the law firm wants to continue. No firm wants it known on the street that they did not succeed with the client.

Finally, the fixed-fee agreement behind can provide for performance milestones. The milestones help assure that the law firm devotes to the matters appropriate resources and obtains quality results.