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Alternative Fee Arrangements

By William C. Cobb

Although in-house counsel have been talking about Alternative Fee Agreements (AFA) for years, there has been little traction. Even in some conferences, counsel say they would rather have hours billed to them than work under an AFA. Clients know business risks, but lawyers tend to be risk-averse. Is the old business model still around because lawyers don't want the to assume risk? Is it because in-house counsel have vested interest in their structure to audit billable hours? Is it because they want to be able to ask for a discount on the hourly rates to prove they are getting a deal? Switching to a responsibly run alternative fee agreement will not only reduce the risk to the real client, but will motivate lawyers to be more responsible and much more efficient. Both the clients and the lawyers serving them can win.

The legal profession's business model has reached the end times. The old “hours times rate equals value” is disappearing at an accelerating rate. The tipping point has been reached. If law firms and in-house counsel are paying attention to books like Implementing Value Billing by Ronald J. Baker and publications like “The New Normal,” published in “Legal Rebels,” which you can see from time to time in ABA e-mails, the trend is evident. In the last six months, I have seen seven articles with examples on AFA. Is this the tipping point? Yes! Now is the time for the lawyer to prepare for the coming of AFA and create the infrastructure to deal with the implications of managing matters. Before AFA becomes the normal, in-house counsel and outside counsel must begin to test their delivery of service processes, matter budgeting, and project management.

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