The issue of financial risk and cost overruns during litigation is not just one that affects entities pursuing legal action, it also has serious implications for law firms whose business model relies on client fees. This situation frequently requires law firms’ pricing teams to balance fixed fee arrangements with contingency fee structures, providing an imperfect solution to the problem.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
The issue of financial risk and cost overruns during litigation is not just one that affects entities pursuing legal action, it also has serious implications for law firms whose business model relies on client fees. This situation frequently requires law firms’ pricing teams to balance fixed fee arrangements with contingency fee structures, providing an imperfect solution to the problem.
In a recent piece of analysis, Brendan Dyer, vice president of business development at Woodsford, argues that litigation funding can represent a more beneficial solution and reduce capital and cash flow risk for law firms. Moreover, Dyer points out that funding need not always be in place from the beginning of a case, and that late-stage financing can be utilized by pricing teams to offset the issues with accidental contingency fees.
Dyer also raises another key benefit, that later engagement with a funder can reduce the size of the financing required when it is solely being used to mitigate cost overruns and ensure ample capital to reach the end of proceedings. This type of funding not only solves a core issue for law firms, but also reduces the likelihood of what Dyer describes as ‘fee fatigue’ from clients, who may otherwise consider ending the litigation prematurely to avoid sinking deeper into additional costs.
