Alternative fee arrangements (AFAs) are nothing new with Simon Chester, an independent consultant, formerly a partner at Heenan Blaikie, stating, “We’ve been predicting since the early ‘90s the absolutely imminent demise of the billable hour.” Although, he said that in 2003, the billable hour remains alive and well. AFAs continue to be the centre of a hot debate in the legal sector, along with the effect they could have on the industry as a whole, there is also some doubt as to what exactly an AFA looks like.
Nonetheless, “95% of law firms now offer some kind of AFAs and all firms with 150+ lawyers do so.” Some examples of these include:
- Blended –The number of hours are taken into account, but billed at a rate agreed upon, no matter who works on the file, whether junior associate or high level partner.
- Fixed or Flat – The firm has set fees for specific services, for example, a specific cost for a house sale or a will that is not based on hours a lawyer spends on the file.
- Results or Contingency Based – The firm is paid based on the results achieved; a fee or rate is agreed upon before work on the file begins. One example could be a payment based on a percentage of a recovery.
- Unbundling – Sometimes called a “discrete task representation” or a “limited retainer.” A lawyer will complete certain tasks, but may not carry or complete a file. They may only do legal research, fact finding, or drafting, leaving the majority of the file to the client.
- Task Based – A project or file is divided into stages or tasks, and each stage has associated fees. The fees are based on the work performed and are billed at the end of each stage.
- Capped Fees – When a firm and client agree to a maximum fee for the work the lawyer or firm are to complete, this sometimes does still have a basis on hours. It may be capped fees or hours.
These are just a few examples of possible AFAs and often times they are combined to provide a more comprehensive pricing strategy, which reflects a client’s desires, while protecting the firm.
For example, with a large litigation file, like a class action, a firm may combine a capped fee program with a blended or results based fee program. Your client will feel more comfortable if the issue is not resolved quickly, while the firm feels protected knowing that a win guarantees an additional fee.
Although we have demonstrated a variety of AFAs, and that lots of firms do have AFA options in place, they are still largely unused with, “85% of all legal work done in Canada still billed hourly…” While the legal community remains adamant that pricing/fee structures are a top issue in the legal industry, it remains to be seen the level of acceptance from both the legal profession and their clients, when they begin to be better implemented and utilized.
For more information on implementing an AFA strategy in your practice or firm see “Evaluating the Profitability of Alternative Fee Arrangements” a presentation by Lexis Nexus –Redwood that excludes the steps necessary to implement your own plan.