Four Reasons Why Alternative Fees are here to Stay

When Law Technology News Editor-in-Chief Monica Bay took the stage at ILTA to run a Q&A following Tuesday’s key note presentation she made a reference to alternative fee arrangements: She’s been forecasting the rise of AFAs for 15 years and while AFAs are certainly a hot topic, the prominence and longevity of AFAs is still debated.

AFAs dominated the discussion in a later panel titled, Sorting It All Out: Law Firm Competitive Intelligence.  Undoubtedly, the panelists believed AFAs were here to stay, and near the end of the session, I had the chance to ask them why: Given Monica’s rightful assessment, why are AFAs here to stay now?

The answers I heard in response were economic pressure, better tools, the availability of data and refined skill sets. Here’s how we see those answers in a broader context:

1. Economic pressure.   At the tail end of a recession that brought AFAs to the forefront, this is the new normal. The demand curve simply won’t support the billable hour model.

2. Better tools.  As technology developers we’ve gotten better at devising intuitive tools that work how legal professionals work.

3.  Data availability. Google CEO Eric Schmidt once said we create as much information in two days as we did from the dawn of civilization up until 2003.  We see it firsthand every day:  Our law firm customers are using tools like Redwood Analytics to sift through reams of data to find business insights – and there are billions of dollars in law firm bills running through our own enterprise legal management system, CounselLink, annually.

4. Refined skill sets. Experience comes with time, and there’s little doubt that law firms and GCs alike are getting better at scoping AFAs. Add to the mix, that corporate procurement professionals are increasingly involved in bringing law firms onboard for legal projects.  One panelist remarked that he’s seeing in-house counsel being removed from the pricing discussions altogether.

We’d add two more points to this list of reasons:

• AFAs are not a law firm loss leader. As CounselLink’s Kris Satkunas points out in a contributed article in The Corporate Counselor Dispelling Six Misconceptions in Alternative Fees Agreements, alternative fees are not a loss leader for law firms.
• AFAs as a competitive advantage. Second, our own Russ Haskin points out in a contributed article to Law Practice Today titled, Six Alternative Views on Alternative Fees, AFAs can be a competitive advantage to law firms.

You’re turn!  What would you add, debate or change about the discussion on AFAs?

If you enjoyed this post, you might also like:
Seven Essential AFA Articles Every Lawyer Should Read