When Contingency or Reduced Attorneys Fees are Possible in Government-Contracting Disputes

By Attorneys Michael Brown and Vonda Wolcott

If your company has ever retained a lawyer or law firm for assistance with a government-contracting matter, chances are that your company was charged legal fees by the hour.

Not that there’s anything wrong with that: most law firms, including the attorney-authors’ firms, charge hourly fees for various matters. Hourly fees are the most common fee type lawyers use, and for many situations they're the most feasible (or only feasible) type of fee that works.

However, in the attorney-authors’ view, there are numerous government-contracting scenarios where law firms could (but often don’t) offer non- hourly fee options, such as contingency fees and other fee arrangements that eliminate out-of-pocket legal fees, or that significantly reduce them (as compared to hourly fees).

This article discusses what types of government-contracting disputes are ones for which lawyers could potentially represent a company on a contingency fee or other reduced-fee arrangement.

Scenarios of Company on “Offense” (Seeking Money Owed) Can Be Contingency-Fit

In our legal practices, we often help government contractors (and other clients) with disputes and litigation.

In some instances, the opponent is seeking money from our clients, putting our clients on “defense”, so to speak.

More often, the clients we represent are on “offense”, i.e., we help them pursue unpaid money they’re owed via negotiations or litigation.

If your company is owed money in a government-contracting related dispute, it's possible an attorney might represent you on a contingency fee or other reduced-fee arrangement of the type discussed below.

What Is a Contingency Fee Arrangement?

In a contingency fee arrangement, an attorney is not paid out of pocket legal fees by the client-company. Rather, the attorney’s fees are paid as a portion (percentage) of money that is later recovered from the opponent (e.g. government agency, subcontractor) via a successful financial settlement or via a court/legal award.

The most common contingency fee rate is 33.33%, although higher and lower rates are also used in many instances.? The contingency rate is typically applied to the entire amount recovered from the opponent. Although, alternatively, as will be discussed in an example below, the lawyer and client could agree that a contingency fee will only apply to a defined portion of money recovered.

If the case does not succeed in reaching a settlement or litigation award, then the contingency attorney is not paid.? Thus, in a contingency fee arrangement, the attorney assumes financial risk, and the company-client avoids financial risk in not having to pay out-of-pocket hourly fees.

What Is a “Hybrid”- (Reduced-) Fee Arrangement?

A “hybrid” legal fee is a fee arrangement that involves a combination of two or more fee types.

For example, an attorney could represent a company-client on hybrid terms that include: (1) an hourly fee of $100 per hour; and (2) a contingency fee of 20% of the amount recovered from the opponent that’s in excess of the opponent’s last settlement offer.

As this example illustrates, the various components of the hybrid arrangement can each involve reduced rates below standard rates most attorneys charge. The $100 per hour fee is a reduced fee as compared to standard attorney fee rates, which typically span $200-$600 per hour in the legal market. And the example’s contingency rate (20%, as applied only to money recovered in excess of the last settlement offer) is reduced as compared to standard contingency fees in the legal market (most commonly 33.33% as applied to the full amount recovered from the opponent).

Types of Matters Most Conducive to Contingency or Hybrid Fees

As we already referenced above, those matters where your company is owed unpaid money and must go on “offense” to pursue recovery are matters for which an attorney is more likely to be able to offer contingency or hybrid legal fee options for representation.

More specifically, these “offense” scenarios could include the lawyer assisting with money-recovery efforts such as these: (1) negotiations for a settlement with a prime contractor that owes your company money, and/or filing a bond claim that seeks money owed from a surety; (2) requests for equitable adjustment (REAs) or disputes submitted to the contracting officer; and/or (3) litigation where your company seeks money owed via claims filed in a Federal Court, a State Court or a government agency such as the Civilian Board of Contract Appeals.

Often, a contingency or hybrid fee arrangement is possible for such cases on “offense”, provided that the lawyer and client are open to considering and discussing such fee arrangements as possible options. Such opportunities for contingency or reduced out of pocket legal fees can be lost if your company and the lawyer you retain don’t think to discuss such possibilities and instead “default” to an hourly-fee arrangement (the most common fee type).

Conclusion

In summary, if your company is owed money in relation to a government contract/project, it’s possible an attorney could represent your company on a contingency fee basis or other arrangement with significantly reduced out-of-pocket legal fees as compared to standard hourly fees/rates in the legal market.

If and when you reach out to an attorney for potential representation for such a dispute, make sure to raise the topic of contingency or hybrid fee arrangements, if of interest to your company, to see if the attorney offers such fee types as options.