Alternative Fee Arragements
The Facts Behind The Buzz
Law firms are under increasing pressure from clients to reduce costs...
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Alternative Free Arrangements: The Facts Behind the Buzz


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Alternative fee arrangements (AFAs) are bringing significant changes to the legal profession. Clients are pushing for a combination of cost savings and cost certainty, and law firms are responding in a resounding way.

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Alternative Free Arrangements: The Facts Behind the Buzz

  1. 1. Alternative Fee Arragements The Facts Behind The Buzz Law firms are under increasing pressure from clients to reduce costs and justify expenditures, and are showing a growing interest in Alternative Fee Arrangements (AFAs) to add more value. But while there's lots of buzz surrounding this new billing structure, how widely is it actually being adopted? And how will the use of AFAs fare in the future? These stats shed some light... Alternative•Fee•Arrangements (AFA) In the practice of law, AFA’s occur when payments to a law firm are based on a method other than billable hours. ADOPTION RATES Law Firms Law Departments Widely Adopted.. ..but not Widely Used e t fe fla AFAs for more than 1/2 of the legal work they assigned to outside counsel in 2011. fee at 12% 60% 12% of legal departments used partia l fl lable ho bil ur now offer some kind of AFA, and all firms with 150+ lawyers do so. 46% 95% of law firms Breakdown of billing type for companies with annual revenues of +$1 billion Why Isn’t It Used More ? Biggest perceived obstacles to wider adoption of AFAs 52% said: Law firms are more comfortable with the billable hour 40% said: Corporate law departments are more comfortable with the billable hour 10% said: AFAs are too risky for the firm's overall revenue 4% said: Partners object or refuse to cooperate 61% said: Law firms are more comfortable with the billable hour 32% said: Law firms resist alternative fee arrangements AFA Growth Clients, not law firms, are spearheading the use of AFAs, and the largest companies are leading the charge. GC’s and CLO’s reported the following: AFA AFA 54% AFA AFA 3% 18% jointly initiated said they initiated law firm initiated REVENUE FROM AFAs Despite wide adoption, AFAs still represent a low percentage of Law Firm revenue AFA billing as a percentage of revenue 19% 67% 16% 2011 2012 used AFAs for less than 1/4 of their billing in 2011. 2013 A bad sign? 6% 17% vs. 2011 2011 Do not even know what percentage of their legal work was billed using a method other than the billable hour or discounting. WHAT DOES THE FUTURE HOLD? Both Law Firms and Legal Departments believe AFA work will increase, but each side sees it slightly differently. Do you expect to see an increase or decrease in the use of AFAs? Increase Remain the same Decrease 4% 2% 26% % 14 70 % 74 % Relative to two years ago, do you think law firms are making progress with AFAs? 19% said: A lot of progress 59% said: A little progress 18% said: Hardly any progress 5% said: Not sure Do you think AFAs will remain a permanent part of legal matter billing? Yes 2% No Not Sure 3% 6% 9% 88% 92 % 72% 8 Who is happy about using AFAs? somewhat to very satisfied 4% somewhat to very satisfied CONCLUSION Law firms and their clients are clearly comfortable with using billable hours as a primary payment structure, and while AFAs may be offered, they are not necessarily widely used. However, there’s little doubt from legal practitioners that this will change in the coming years. For law firms willing to get ahead of the curve, there looks to be considerable opportunities with AFAs to increase efficiencies, increase revenues and better meet their clients’ expectations. Intuitive, affordable, pervasive – thousands of companies choose Firmex Virtual Data Room (VDR) solutions to securely share their highly confidential documents. Leaders in corporate and financial transactions, M&A, compliance, litigation, and procurement value Firmex’s ease of use and outstanding support to accelerate their online document sharing and collaboration projects.