LexisNexis CounselLink provides a concise overview of alternative fee arrangements (AFAs) for legal billing. This presentation is useful for corporate legal departments and law firms alike and covers: AFA definitions, AFA types, market statistics on usage, examples of how AFA modeling and a methodology for implementing AFAs.
1. Implementing AFAs without FUD (Fear, Uncertainty, Doubt) Brandi Gunn
2. Billing arrangement between clients and firms requiring billing by law firms in something other than standard detailed hourly model In other words, Not Hourly! AFAs Defined 3. More than 50% of CounselLink customers and their law firms 2012 to present Over 44,000 AFA matters 16% of total matters Over $600m in fees submitted on an AFA 9% of total fees submitted Who uses AFAs? 4. Other 8% Commercial and Contracts 19% Corporate , General, Tax 4% Employment and Labor 8% Environmental 1% Finance, Loans and Investments 14% IP - Other 10% IP - Patent 7% IP - Trademark 6% Insurance 9% Litigation - General 6% Mergers and Acquisitions 4% Real Estate 1% Regulatory & Compliance 3% % of Total Matters Using AFAs AFA Matters by Industry 5. Other 4% Commercial and Contracts 12% Corporate, General, Tax 14% Employment and Labor 3% Environmental 0% Finance, Loans and Investments 7% IP - Other 2% IP - Patent 10% IP - Trademark 0% Insurance 14% Litigation - General 21% Mergers and Acquisitions 1% Real Estate 0% Regulatory & Compliance 12% % of $ Using AFAs AFA Spending by Industry 6. Predictability Cash flow Matter cost Department budget Reserving self insured retention, reinsurance, or premium impact Share risk with the firm Cost reduction Efficiency Faster and easier to review/approve invoices in CounselLink Use for vendors such as copying, court reporting etc. Why would you want to use AFAs? 7. Discounted hourly rates Volume discounts Blended rates Retainers Hourly- based Fixed / Flat Fees Contingency Success incentives Collared arrangements Capped fees Hold backs Risk- based Stage / Task based Hybrid Market priced fixed fees Bundled pricing Value- based Non Hourly True Alternative ArrangementsHourly Alternative or Not? Types of AFAs 8. Law firms provide a specific service for a set price Used when the total scope of work is routine, repetitive and scope is easily defined Examples: Workers Compensation, Investigation and Advice Fixed or Flat Fees Discrete related tasks with a clear deliverable at the end of each stage Works best with Transactional matter types such as Immigration & IP Staged / Phased Based Mix of different models such as fixed fees for initial / discovery stage and then hourly for trial preparation followed by fixed for actual trial. Common areas of use: Litigation & Employment Hybrid Client makes a deposit against charges for future services or The law firm guarantees availability for a specific period of time Supports a more consistent / predictable cash flow Retainers Client pays the law firm based on the results achieved Payment can be expressed as a percentage of the recovery, settlement or amount saved Most common in debt recovery / collections Contingency Fees Most Common AFAs 9. Request for proposal (RFP) model Parameters of matter are laid out up front and then provided out to law firms for submission of best price Commodity type matters such as low dollar insurance defense or advice Market Price Reduced hourly fees by biller / level for specific matter types Typically coupled with some sort of bonus for meeting desired outcome Discounted Hourly Fees Pay the law firm up to a specified maximum amount Can encourage efficiency, but considerably more risky for the law firm More common in transactional matters Capped Fees Agreed upon total fees (see Capped Fees above) Often a 10% collar (overage/underage) credited or paid Credited or paid amount is typically 50% of normal fee Limits risk to both client & law firm Collared A portion of the total fee is held until an agreed upon milestone or result is delivered or until the completion of the case Used in debt recovery Can be objective or subjective, client discretion based on satisfaction Holdback Other AFAs 10. Mechanics of AFAs Hourly Fees One time fixed amount Fixed amount, billed multiple times: Daily rates Filings etc. Expenses are separate Never locked into one arrangement permanently 11. Examples of AFAs Litigation 1. Investigation 2. Discovery 3. Trial Preparation 4. Trial 5. Appeals Trademarks 1. Initial Investigation / Admin 2. Trademark Investigation 3. Application Preparation 4. Renewal or 5. Prosecution 12. Examples of AFAs Recovery 1. Demand Letter 2. Default Judgment 3. After answer up to trial 4. Trial 5. Post trial 6. Filing of Abstract Judgment 7. Execution of Judgment 8. Debtors Exam 9. Subsequent Execution of Judgment 13. Mining data: Which practice area is best served with AFA? What is the right AFA? By practice area, matter type or line of business Where will I get the biggest bang for my buck? Which of my firms will work with AFAs? How do I know what to pay on an AFA? Is an AFA project worth the effort? How do I manage AFAs? How do I measure success? Customer Challenges 14. Firms can be risk averse Will they lose money on the project? Traditional law firm internal compensation models are based on the billable hour They dont know what to charge May be hard to report / track results Law Firm Challenges 15. Plan Design Test Deploy Validate/Repeat as necessary Methodology to Implement 16. Plan Drive this through your LDO, Not OC Determine your primary and secondary goals Make sure they are quantifiable & reportable Determine your long term reporting needs by matter type Mine your data What matter types do you have? What are the rates, hours & totals you are paying (include disposition) What is common for similar customers? Do you have preferred firms? Can you group them in some logical manner? Are your ideas consistent with your overall LDO strategy? Methodology to Implement 17. Design Dont re-invent the wheel, use your resources LexisNexis Strategic Consulting Group ACC Value Challenge materials Volumes of articles and material on the internet Model them off of actual billings & goals Total costs should include disposition averages Plan for the opt out use cases Collaborate with 1-2 key partner vendors Methodology to Implement 18. Test Work with your key vendors to test the agreement first. Is it easy to understand? Is it easy to set up fees initially? Are the stage / type transitions, if any, clear? Pilot the agreement. Assign appropriate sample set of matters to your pilot firm(s). Make sure the way you want the AFA to work also works for them Methodology to Implement 19. Deploy Develop Training / Law Firm Job Aids based on learnings for full deployment Remember you can change model mid-stream Repeat as necessary Methodology to Implement 20. Did you get the value you anticipated? What was the total cost of the case (time + expenses + resolution costs) How was Firm participation? How to Measure Success 21. Sample Reports 22. Sample Report By Law Firm 23. Sample Reports 24. Sample Reports 25. 1. Define your objective & scope 2. Research models that resonate with your company / firms / operational model 3. Plan / design with LexisNexis Strategic Consulting 4. Monitor your results / success Key Takeaways 26. Additional Resources AFA related posts on the Business of Law Blog: 10 Authentic Tips for implementing AFAs in Legal Billing Infographic Friday: The Case Against Billable Hours How Inside Counsel can Use Data and Analytics Four Reasons Why Alternative Fees are here to Stay Seven Essential AFA Articles Every Lawyer Should Read Connect and engage: LexisNexis CounselLink case studies, whitepapers, and webinars Blog: www.businessoflawblog.com/corporate-counsel Twitter: @business_of_law or @LNCounseLink Facebook | Google+ | YouTube www.counsellink.com