Data suggests that smaller firms are more inclined to structure alternative fee arrangements (AFA) than larger firms. However, as so often in law, such assertions – even data driven assertions – are not always so cut and dry. Whether that’s true or not might be better answered by saying, “It depends.”
It does depend. The graphic below the headline on this post is a screenshot from an infographic stemming from the Enterprise Legal Management Trends, report issued last fall and based on about $10 billion in legal fees. It found firms with less than 50 attorneys structured legal fees more often under AFAs than any other category in the data set.
AFAs can be a competitive advantage, argued Kris Satkunas, in a piece published on Inside Counsel titled, Four certainties about alternative fee arrangements. One reason that might be true is pricing strategies, which is in essence is what AFAs are, is one way to differentiate a service in a highly competitive market. She wrote:
Some industry watchers suggest AFAs are simply a vehicle for the general counsel to drive a hard bargain with law firms. The reality, however, is about driving efficiency — and efficiency presents the opportunity for firms to grow more business. In the eyes of the corporate law department, outside counsel raises the question of value rather than price. For law firms, it’s an opportunity to strengthen a relationship with a client and, perhaps. To win a greater share of work in the process.
The Case against Billable Hours
One law firm has made the case against billable hours in this infographic, which is well constructed and based on secondary sources, from credible legal trade articles published circa 2012. The infographic reinforces what San Diego Law Firm (Google+ | Twitter | Facebook) says makes it different on it’s about us page:
With fixed fees, you’ll know how much our services will cost before we get started, and we’ll discuss your options with you along the way.
The infographic makes three arguments against billable hours:
1. Billable hours rewards lawyers for inefficient processes. “Unset time to achieve vague goals leaves too many uncertainties,” reads the infographic.
2. Lawyers are pressured to meet quotas. The infographic says the ABA recommendations 1,300 billable hours per year per lawyer, however the average requirement today is about 1,800 hours.
3. Law firms promote based on time billed rather than skill. The infographic cites a “leaked email” from another law firm with a numerical rating ostensibly used to assign legal projects.
AFAs ebb and flow in the headlines of our industry. While we don’t think they’ve quite hit mass adoption, there are indications the growth is slow and steady.
What do you think? Are AFAs more hype than substance? Can they be a competitive advantage?
Here’s the complete infographic:
If you enjoyed this post, you might also like:
Seven Essential AFA Articles Every Lawyer Should Read