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The customary manner of pricing consultancy services is on an hourly rate basis. The difficulty clients have with hourly-based billing is that it offers neither certainty nor predictability.

A number of modifications have been introduced to mitigate the risks associated with hourly-billing.

These include:

• Percentage discounts. Discounts on standard hourly rates based upon the volume of all or selected types of work performed are the most frequently applied alternative. To obtain a greater volume of legal work from particular clients, more firms are offering volume discounts on fees, based upon an overall level of fees charged for services performed. Further, many firms that serve clients who can refer third parties to the law firm offer discounted rates for work performed for the client’s knowledge, add a surcharge to the fees for work performed for third parties.
• Reduced hourly rates are another option. Many firms agree to reduce their standard rates with the understanding that a standard or pro rata performance bonus will be received in the event of a successful conclusion or upon concluding the matter within a specific time. The amount of the bonus is based upon a formula, which relates to a predetermined gain or loss in terms of dollars or assets, or savings of payments for the client derived from completion of the matter within a given time. Other law firms may change their standard rates if the transaction closes and sharply discount these rates if the deal fails to close.
• A third option is blended hourly rates. A client is billed the same hourly rate whether the work is performed by a partner or an associate. As such, this arrangement is suitable in those established relationships where the client can trust the law firm to assign work to the attorney who possesses the appropriate expertise to perform the work.

To date, none of the forgoing has been found to offer a complete solution to the problems municipalities face with respect to the pricing of consultancy arrangements.

To an increasing extent, consultants are being asked to offer “fixed” price arrangements in RFPs for consultancy work. The goal of a fixed fee is to reduce the possibility that consultancy work (and the time required to carry it out) will continue to expand to fill up the time of the staff available to work on it (a serious risk during a period of recession).

There appears to be some concern consultancy teams are too large, resulting in a proliferation of hours. And that work carried out by associates is not sufficiently supervised and subject to review against value-for-money criteria.

Clients object to paying for the consultant’s staff training, since professional expertise is what experts are widely expected to bring to the table.

Recently, in Canada, clients have begun negotiating fixed fee arrangements on specific matters requiring as little as 25 hours of legal work.

In other cases, clients have asked for the quote of a fixed fee as an optional pricing arrangement in addition to the more traditional per hour rate quotation.

Where a fixed fee arrangement is accepted, the client and law firm agree upon a fee for each phase of the work, with change order provisions in the event of unforeseen developments.

Fixed fee arrangements are generally suited for “routine” type work, where repeated experience in carrying out work of the kind in question can be used as a guide is settling an appropriate fee.

However, there are significant obstacles that have thus been sufficient to discourage a widespread shift to this method of compensation for consulting services.

Not the least of these problems is the lack of experience that many consultants have in working out what should be involved in doing particular types of work and the time it should take to complete that work.