Alternative Fee Arrangements

December 13, 2012 | Author: admin | Category: Uncategorized | Comments (0)

The term “alternative fee arrangements” is the general description for the means by which lawyers charge for their services other than by the hour. AFAs are increasingly popular with clients, and law firms, in response, are routinely touting their use of AFAs. Is this just a marketing trend or are law firms now providing both certainty in billing and lower fees? Without doubt, a fee arrangement which provides for a maximum fee or a definite amount provides certainty. Certainty, of course, can be a relative term depending on how the fee is structured. So far, so good.

Do AFAs also provide for lower fees? Only if negotiated by a client. Many clients want both certainty and lower costs in their fee arrangements. It’s generally easier for a law firm to provide certainty than a lower price, or at least a substantially lower price. It all depends on how the law firm is structured. If the law firm has a traditional structural model, using a pyramidal structure of lawyer seniority (with a substantial number of inexperienced lawyers) and a considerable support staff, then overhead can comprise a substantial part of any fee, whether computed by the hour or subject to an AFA.

Law firms which estimate AFAs should logically take into account both overhead and the amount of desired profit. When the overhead is large, the amount of the AFA will of necessity be larger. Do law firms compute estimated fees for AFAs or just wing it (also known in less privileged circles as a WAG)? Many law firms do not have the experience or database information to forecast fees within some desirable range of certainty. The message to a client which wants AFAs is to shop for fees with law firms which have the reputation (usually a manifestation of experience) for providing on-time services and quality work in the area of law or industry affecting the client. It’s up to clients to drive quality improvement and lower costs – just another manifestation of the law of supply and demand.

Also important – it’s not all about fees. It’s also, as mentioned above, about on-time delivery and quality. Should clients care about how AFAs are calculated or determined? Absolutely, if they care about anything other than just price. But that’s a topic for another day (also known as a teaser).

[The author of this post is Wynne James]

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