Fixed or capped fees – as a client which would you go for?

Last week the American Arbitration Association (AAA) announced that it would introduce an alternative fee arrangement (AFA) option on “eligible cases” offering to help resolve B2B disputes through the arbitration process (source prnewswire.com).

The AAA’s claim is this is the “first of its kind to be offered by a national provider of alternative dispute resolution (ADR) services“.

So let’s check it out.

Setting aside the “eligible cases” issue, what are the AFAs being options being offered?

According to the AAA:

  • Fixed Fee Arrangement, whereby an AAA arbitration panel member proposes a fixed fee for the pre-hearing, hearing, and post-hearing phases of arbitration which must be approved by all parties.

  • Capped Fee Arrangement, whereby an AAA arbitration panel member proposes a fee cap for the entire arbitral process which must be approved by all parties.

Wait a second, as you’ll know from my last post, capped fee arrangements are not an AFA and any pricing expert advising you otherwise needs to be shown the door.

But…

Given the choice – as a client of a  law firm client – which would you choose?

My take: depending on how different the two quotes are – which I’m guessing would be done on an “hourly rate x number of hours x which way is the wind blowing calculation“, I’d go capped fee (the exception here, a really low ball fixed fee).

Why – given my objection to this?

Well, because a fixed fee is – fixed. While a capped fee is – capped.

So if your lawyer comes in under cap (using hourly rates), they can only bill you what they have charged. And if the lawyer breaches the cap (using hourly rates), then they cannot charge you any more than the cap – hence it’s name.

So, as a client, I win both ways.

While a fixed fee is fixed. So if the lawyer uses time-sheets (hourly rates) and comes in under the fix, back luck you client. On the flip side, if the lawyer uses time-sheets and comes in over the fix, back luck law firm.

QED: in this case, I’d go the capped fee option.

The sting in the tale here though is these 7 little words:

“which must be approved by all parties.”

which despite India Johnson, President and CEO of the AAA-ICDR, comment that:

“Alternative fee arrangements align with our mission to add cost savings and fee transparency and predictability to the arbitral process; the AAA and its Roster of Arbitrators are proud to be the first arbitral institution to offer an AFA option to parties and counsel seeking to resolve their disputes through arbitration,”

means the reality is it will never happen.

rws_01

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