Legal Business

Risk collars: A great way to start offering alternative billing

Whenever I give speeches about alternative fees, lawyers who are just starting to consider this approach are fascinated by the idea of risk collars.  These arrangements are essentially the same as hourly billing, with one giant exception: risk collars align the interests of lawyers and clients.  If work goes over budget, both sides lose.  And if it can be completed under budget, both sides win. This selection from our national survey of alternative fees provides some details.

Lawyers use the term "risk collar" to refer to an hourly billing arrangement built around an estimated budget for a particular matter.  The client pays a bonus if work is completed under budget and/or gets a discount if the work goes over the budget.

Like a fee cap, this is really just a variation on hourly work, but unlike a fee cap it may align interests and offer incentives to both clients and law firms:

For people who are fearful about how big a risk they are taking on, I typically propose attempting to reach some accommodation on a collared arrangement. [Then] there are some limits to the upside, but there is also a limit on the risk [and] the downside for both the in-house and the outside counsel.

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