You Should Push for Alternative Fee Arrangements

Billable hours have been around a long time, and inertia presents a hurdle to innovation. Creative attorneys, however, are learning to package their services more like tangible products by seeking efficiencies and exploring volume discounts. The most prominent example of this approach is the alternative fee arrangement, or AFA. AFAs come in many forms — reduced rates, blended rates, fixed fees, annual fees, contingent fees and mixed contingent fees.

The best AFAs create value for the in-house lawyer by delivering certainty. This, in turn, helps control and manage the legal budget. There are legitimate fears on both sides, but they can be overcome with a well-drafted letter of engagement.

Although big firms don’t have much incentive to take small engagements on a one-off basis, they can be incentivized to take a portfolio of such engagements. Because the services are being provided under an AFA, the client should be able to realize significant savings while dealing with a consolidated list of quality firms that deliver a consistent work product, and have familiarity with the client’s business and risk profile. Outside counsel can use portfolio management to generate revenue streams that they previously might not have been able to competitively service.

Some engagements will not work as an AFA. But clients would be remiss if they do not explore these options. Similarly, outside counsel would be wise to invite such discussions, and even wiser to propose such arrangements to their clients.