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Richard Baer, general counsel of Qwest Communications, recently made several points against fixed fees. He gave four reasons for his opposition to them in an interview by Corp. Counsel, March 2010 at 18. His points don't persuade me.
Baer begins with the view that a firm operating under a fixed-fee agreement may be misaligned with its client's goals "because the firm wants to do as little as possible to maximize its profit margins." Yet just a paragraph before Baer argues that with hourly billing, good lawyers don't gouge because they want to be retained over and over in the future. The same logic applies to firms that represent a company under a fixed fee.
Second, Baer frets that the firm might "use people who may not be qualified to do the work." But a legal department that negotiates a fixed fee does not thereby abandon the choice of staff to the firm. Rather, as with hourly billing, it can select the core staff that it wants to see on the matter and propose a rough distribution of their time.
Third, in litigation where fees are fixed Baer worries that firms may try to settle cases quickly, "to increase their profit margins." My understanding, unless the arrangement with the firm gives them a right to decide settlement payments and timing - which is highly unlikely - is that the company still holds the purse strings. If anything, a stingy client could balloon the firm's investment of time under the set fee.
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