Alternative Fee Arrangements (AFAs)

July 19, 2023

Agreeing Upfront on the Work, the Lawyers & the Fee? Or Micromanaging Later On?

by Joel A. Webber

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The Point

A judge’s ruling last week* illustrates which of the above two alternatives is better for the client company.

The court, after reviewing a law firm’s bill in a bankruptcy case, found that AmLaw 100 firm Pillsbury Winthrop Shaw Pittman LLP** had overcharged its debtor client by about $1 million. On a $6.3 million bill†.

Lessons for a client company engaging a law firm:

1. Define the task and sub-tasks before work begins, to maximize the likelihood that the lawyers will understand exactly what you want — and that you will be able to make them accountable for following your wishes.

2. Identify by name or by experience-level which attorney will do what part of the task, to assure promised quality of representation, and to avoid paying partners and other senior attorneys for simple tasks.

3. Make your legal costs predictable by agreeing on the total fee in advance rather than agreeing to pay by the hour (perhaps with a bonus formula based on results). Continue reading

July 3, 2023

What the 2022 Data Tell Us about Spiraling Law Firm Fees: A Disconcerting, But Direct, Inference (Part II of II)

by Joel A. Webber

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The Point

When should your business pay the exorbitant prices of a major law firm?

When you need the full attention of the best attorney available for the task presented.

But something else is happening.

The data say that in 2022 corporate clients were paying proportionately more for the total hours of junior lawyers, and getting less attention from their most proficient, experienced colleagues.

How did that happen? The data indicate that law firms “mitigated individual attorney rate increases by adjusting staff mix.” What does that even mean? Apparently it means the appearance of cost control on law firm charges by making less use of higher capability (higher priced) partners, while making more use of lower capability (lower priced) associates. Continue reading

June 23, 2023

What the 2022 Data Tell Us about Spiraling Law Firm Fees: Four Explicit Findings (Part I of II)

by Joel A. Webber

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The Point

From the tenth consecutive year of LexisNexis CounselLink® 2023 Trends Report: In-depth Perspective on Rising Outside Counsel Billing Rates:

1. Law firm lawyer and paralegal (“timekeeper”) rates increased in 2022 at the highest levels since CounselLink first produced the Trends Report, in 2013, with the average partner rate increasing 4.5% (relative to 3.4% last year and 3.5% the year before).

2. These record-high average rates of hourly rate increases were higher than in the previous year “in all tiers of law firms and in all practice areas“.

3. Keeping track of the proliferation of lawyers that outside counsel assign to a matter is a big challenge in managing outside counsel — the finding: “High numbers of billers are performing minimal work on matters.”

4. Alternative fee arrangements (AFAs / capped charges with related terms on success fees, etc.), if they were used, would be the chief antidote to the prevailing billable hour: but only an average of 12.4% of matters made use of AFAs last year. No growth from previous years. Continue reading

May 28, 2022

Give Price Negotiations a Chance: U.S. Firms Use Alternatives to Billable Hour in 16.8% of Matters — Just Hourly-Billing-in-Disguise? / Part II of II

by Joel A. Webber

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The Point

Business analyses — and decisions to which they can lead — are no better than the data on which they are based.

Part I of this two-part series considers the tiny minority of legal matters priced to client companies on a basis other than attorney hours (a reported 16.8%), and then asks if more resolute negotiation by the corporate law function might wean outside counsel from hourly billing. LexisNexis / CounselLink, source of the 2021 report and that 16.8% number, is a superlative provider of data concerning legal services delivery.

But data about legal services delivery are usually of less precision and less transparency than, for instance, data on which audited financials are based. In particular, two flaws in the empirical findings behind the “16.8%” figure limit that report’s utility for understanding the true extent of AFA’s in U.S. legal practice. Continue reading

May 24, 2022

Give Price Negotiations a Chance: U.S. Firms Use Alternatives to Billable Hour in 16.8% of Matters — Why Not Demand More? / Part I of II

by Joel A. Webber

The Point

“In 2020, 16.8% of [corporate legal] matters had some portion of their billing under an arrangement other than hourly billing”, according to the most recent LexisNexis / CounselLink trends report on U.S. law firms’ charges to U.S. corporations (2021 report based on 12 months of data between January 1, 2020 and December 31, 2020).

Which invites a working hypothesis, or at least a question:

Where a business finds the gumption to negotiate robustly with outside counsel on price, might corporate purchasing power prevail over lawyerly inertia? Continue reading