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.

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.
http://www.wilmerhale.com/about/alternative_fee_arrangements/
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.
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blog.larrybodine.com/2012/07/articles/money/survey-finds-slow-adoption-of-alternative-fee-arrangements-for-legal-services/
http://lawmarketing.com/alternative-fee-arrangements-new-and-better-ways-to-price-legal-services/#
http://www.jaffepr.com/about-us/industry-insight/white-papers/marketing-law-firm-value-alternative-fee-arrangements
http://www.wilmerhale.com/about/alternative_fee_arrangements/
http://abovethelaw.com/wp-content/uploads/2013/01/Citi-Hildebrandt-2013-Client-Advisory.pdf
http://www.geeklawblog.com/2012/08/toby-brown-on-iltatv-afa-or-lpm-find.html