- Acumen Powered by Robins Kaplan LLP®
- Affirmative Recovery
- American Indian Law and Policy
- Antitrust and Trade Regulation
- Appellate Advocacy and Guidance
- Business Litigation
- Civil Rights and Police Misconduct
- Class Action Litigation
- Commercial/Project Finance and Real Estate
- Corporate Governance and Special Situations
- Corporate Restructuring and Bankruptcy
- Domestic and International Arbitration
- Entertainment and Media Litigation
- Health Care Litigation
- Insurance and Catastrophic Loss
- Intellectual Property and Technology Litigation
- Mass Tort Attorneys
- Medical Malpractice Attorneys
- Personal Injury Attorneys
- Telecommunications Litigation and Arbitration
- Wealth Planning, Administration, and Fiduciary Disputes
Acumen Powered by Robins Kaplan LLP®
Ediscovery, Applied Science and Economics, and Litigation Support Solutions
-
October 2, 2024Robins Kaplan Earns Mansfield 2023-2024 Certification Status
-
September 30, 2024Brandon Vaughn Elected Chair of American Association for Justice (AAJ) Diversity, Equity, Inclusion and Accessibility Committee
-
September 27, 2024Robins Kaplan Attorneys Named 2024 Massachusetts Super Lawyers and Rising Stars
-
October 9, 2024Perception vs. Reality in Trust and Estate Matters:
-
October 20, 2024License Agreement Disputes:
-
October 21, 2024How Much Did We Invest in AI?
-
September 2024Meet Our New Partner and Trial Advocacy Seminar Keynote Speaker: B. Todd Jones
-
September 2024Q&A with Alan Harter, Founder of Pactolus Private Wealth Management
-
August 2024Recruiting & Retaining Diverse Attorneys: Building an Inclusive Legal Profession
-
September 16, 2022Uber Company Systems Compromised by Widespread Cyber Hack
-
September 15, 2022US Averts Rail Workers Strike With Last-Minute Tentative Deal
-
September 14, 2022Hotter-Than-Expected August Inflation Prompts Massive Wall Street Selloff
Find additional firm contact information for press inquiries.
Find resources to help navigate legal and business complexities.
Using Alternative Fee Arrangements to Redefine Your Bottom Line
December 07, 2016
In 1958, the American Bar Association (ABA) published a pamphlet recommending that attorneys track and keep detailed records of their time. For better or for worse, legal work has since been measured by the “billable hour”—the established practice of breaking down an hour’s work into six-minute increments. This metric appeared unassailable until the economic downturn of 2008. Companies of all sizes began to reevaluate their legal spend, and clients turned a critical eye to the billable hour. As a result, law firms began to widely adopt alternative fee arrangements (AFA), previously used by only a select few firms, as a creative way to tailor legal spend to their clients’ needs.
Unfortunately for clients, many law firms are still not comfortable championing AFAs. A recent survey, Altman Weil, 2016 Law Firms in Transition (2016), found that only 28 percent of law firms using AFAs initiated those arrangements—compared to the 72 percent who only adopted an AFA after a request from a client. Underscoring the importance of AFAs, the survey also found a “7-year trend of compelling success enjoyed by firms that take a proactive approach to alternative fee arrangements.”
Benefits of Alternative Fee Arrangements
AFAs allow for greater control over legal spend, allowing growth-stage companies, for example, to keep more funds invested in the organization. Additionally, AFAs may mutually benefit clients and law firms as follows:
- Where both parties have “skin in the game,” outside counsel is motivated to champion the client’s cause efficiently, and clients appreciate that perspective.
- AFAs provide certainty better than the traditional billable hour system as they are structured directly to the client’s budget.
- AFAs allow billing to reflect sophisticated strategic concerns. For example, a client expecting multiple or concurrent litigation may cap one case for all fees yet establish a larger contingency fee in another.
- AFAs provide access to the legal system for clients with worthy claims but insufficient funds to sue.
Choosing the Right Alternative Fee Arrangement
The key to every successful AFA is a joint effort to create mutual value. Choosing the right AFA requires a robust conversation about the client’s goals and expectations at the outset.
- Pure contingency AFAs place all risk for success on the law firm. Many law firms tend to avoid these AFAs since they are risk averse themselves. Such contingency terms are best handled by firms with extensive experience in gauging value in similar cases.
- Modified contingency AFAs apportion costs and a per diem fee. Such arrangements often include “kicker” paid to the firm if the client prevails. Others may include a “hold-back” arrangement that not pay some amount if the case is not successful, as defined.
- Capped fee AFAs cap the amount payable by marker points in the litigation or for the entire litigation. Such AFAs provide the ultimate certainty for budgeting purposes but require extensive communication as to what assumptions are built into the proposed caps (number of experts, prevailing at certain stages of the case, etc.). Often, such AFAs include a provision allowing both parties the ability to revisit caps in the event of an unexpected event materially changing the litigation.
- Fixed fee AFAs describe increasingly popular agreements using a fixed monthly or annual amount. A 2015 survey, Norton Rose Fulbright, 2015 Litigation Trends Annual Survey (May 2015), found that life sciences and healthcare companies used such AFAs 13 percent more often than their peers (79 percent vs. 66 percent). Again, clients and law firms need to describe expectations and options in the event of material, unexpected changes. Fixed fee arrangements are most appropriate for cases with predictable costs and timing where the client has a clear goal.
Conclusion
Before selecting any AFA, both parties should conduct extensive due diligence. The selection process should include as much historical data as possible, as well as room for the experiential wisdom of the seasoned trial lawyer. Likewise, due diligence requires both parties to fully disclose any information that might affect the outcome. These arrangements, when carefully crafted, can strengthen and bring additional value to the attorney-client relationship.
Related Professionals
Li Zhu
Partner
If you are interested in having us represent you, you should call us so we can determine whether the matter is one for which we are willing or able to accept professional responsibility. We will not make this determination by e-mail communication. The telephone numbers and addresses for our offices are listed on this page. We reserve the right to decline any representation. We may be required to decline representation if it would create a conflict of interest with our other clients.
By accepting these terms, you are confirming that you have read and understood this important notice.