Law Firms Get Real About Alternative Fees

Alternative fee agreements have been a hot topic in the legal industry for some time now, and as the economic downturn has increased competition for clients, the dialogue about AFAs has only increased.  At this point, few law firms will argue that AFAs are a bad idea.  Instead, the conversation has turned to the practical – just how do firms and their clients implement an alternative arrangement that justly compensates the firm while providing value and predictability to the client?

Rachel Zahorsky, for the ABA Journal, addresses this question in an article this week about the challenges and opportunities firms have encountered on the sometimes rocky road from hourly billing to flat fees.  The opportunities are frequently obvious; Rebecca Weinstein Bacon of Bartlit Beck Herman Palenchar & Scott cites the way AFAs help avoid some of the conflicting interests inherent in hourly billing:

“If you determine it is necessary to have a meeting with three partners, there’s nothing stopping you from doing that.  Whereas traditionally, if you have three partners in a meeting you might wonder, ‘What will the client think? Will this be too many people?  Will I have to write off hours?’”

But the challenges can be surprising.  AFA’s can seem like a simple solution to billing woes, but Zahorsky reports that the final agreement often introduces significant complexities, such as deadline rate changes, discounts and incentives.  The final agreement can be hard to implement, and even harder to later evaluate:

Standard billing and tracking models can’t provide the analysis necessary for lawyers to effectively and accurately predict how a future matter should be priced, [Hal M. Stewart of Chadbourne & Parke] says.  Firms need to develop the infrastructure and fee-analysis programs to effectively implement alternative pricing models from cradle to grave, including initial proposals, case management, staffing standards, revenue analysis and post-engagement reviews.

Still, the ultimate pay-off can be worth it.  Perhaps the most interesting part of Zahorsky’s article is her account of how Shook Hardy & Bacon reached its current arrangement with Tyco, under which the firm handles all of the company’s product liability, automobile and general liability litigation.  Although questions remain, it’s worth a read.

Posted by Emily Fisher