Wednesday, August 27

Contingency fees for mediators

I have been on this soap box before at Why do so few mediators make any money? and Cheaper is a short term hit, not a long term advantage as well as other posts on this blog.

But seriously what's wrong with the way we price ourselves? Why are some mediators not making money?

Most mediators charge fees based on time. This usually means hourly or daily rates. But why?

There will be other alternatives to time based fees and these are just some of them that spring to mind;

1. A flat base fee, increased by an amount for every extra party to the mediation- for example, an amount on top of a standard daily fee for each 3rd and additional party

2. A success fee - flat fee (or no fee) plus a success component - for example, if the mediation fails to settle no fee is charged (only expenses/disbursements) but if the mediation does settle, twice the mediator's standard daily fee is to be paid

3. A fee based on the sticker price
of the claim - for example, $5,000 per day for claims under $200k and $7,000 for claims 200k - $1m etc (like at What UK Mediators Charge )

4. A fee based on a percentage of the settlement amount

5. A fee based on a percentage of costs saved by avoiding litigation

6. A fee-based on the percentage of the value created by the mediated outcome

Most of these alternatives are prohibited by local ethical rules or, even where they are not, it's safe to say that most mediators would frown on some of them - the logic being that if our compensation depends on the mediated outcome we cannot remain neutral - most codes require mediators remain both impartial and self-disinterested.

Other than #1 & #3, each one of these contingency arrangements appears to conflict with that requirement.

But how come lawyers are being encouraged to think in terms of the value of services, not rates? Why not mediators? Is our work so different? - well yes actually, lawyers act against/for a particular interest while mediators are usually in the middle of those competing interests. But we are creatures of contract - why can't we take a value approach - especially with sophisticated participants?

The case for and against (but mainly for) contingency billing by mediators is put in the well reasoned, but appallingly named, Contractarian Economics and Mediation Ethics: The Case for Customizing Neutrality Through Contingent Fee Mediation by Scott Peppet of CU Law. And find out why this minority view says neutrality is not undermined simply because of mediator interest in the outcome!

I don't have the answer, especially since I have always confined myself to a per mediation flat fee which I think gives parties refreshing certainty as they face their own lawyer's open ended hourly fee.

But, if you're interested, why not read RainToday's collection of the best short articles by 12 different experts on professional pricing at
The One Piece of Advice You Need to Get the Fees You Deserve - they all point to value not time.


Anonymous said...

Geoff, it's not so much how mediators price themselves as supply and demand. Too many mediators resulting in a long tail of pedestrian practitioners. The good guys are busy and can name their price.

Colm said...

There may be "too many mediators" but since most of us are "pedestrian practitioners" any ideas to increase both case load and earnings should be looked at very seriously.

"Mediation" covers such a wide field but in conflicts in the legal system where most if not all disputants want settlement, why not use contingency fees? After all mediators are already invested in their "settlement" rates as a marketing tools so why not go to the nest stage?