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AFA 3.0 – the Evolution to Effective Fee Agreements: Part 3 (It’s Already Built)

March 19, 2013

In Part 2, I briefly looked at some “traditional”AFA models and their rather ho-hum results – no wonder GCs and clients aren’t singing their praises.  So why the lukewarm reception (at best) to these “traditional” AFAs?  I think this GC has figured it out:

Fee agreements do not work where one party is trying to get a “deal.”  In a successful fee arrangement, both the company and the law firm are satisfied with the overall bill.

Uh, that’s not so complicated, right?  It’s actually quite simple in theory, but much harder to put into place in the real world, because it takes hard work (yes, Pat Lamb is correct (see Part 1)), transparency, frank discussions of goals and acceptable risks, and getting the attorney(s) “skin in the game.”  When done right, you get to the promised land of “win-win.”  When done wrong, ain’t no one happy.

The good news for smart clients?  Open your eyes.  Look about.  The field has already been constructed. All that is left for you is to come play and reap the rewards.

alternative fee agreements

So, rather than ramble on with more theory, I’m listing some real-life EFAs (“Effective Fee Arrangements/Agreements”) that are being offered by actual firms/providers in the here and now.  Better yet, most of these firms also have great websites that offer excellent synopses of their philosophies. Hmmm. Transparency. Lack of mumbo jumbo.  This list is not meant to be exhaustive by any means, and there are many, many, more qualified “players” out there.  The Field of Dream all-stars include:

  • Fixed Fee (non-billable hour based):  Rather than give you a flat price that is essentially an average of the expected hourly fee plus a 10% safety net, revolutionary firms like Riverview Law, offer a competitive fixed fee model based on their competitive advantages of lower overhead and choosing to embrace and use new technologies.  Clients can choose from fixed annual pricing or fixed project pricing.  Predictable and affordable? Yep. How do they do it?  They explain it better than I can here.
  • Embedded/Gap/LPO: The key word here is efficiency.  This model, much like Riverview above, uses low overhead, technology, LPO, and insourcing, to outcompete traditional law firms, who have infamously massive overhead (between $200K-300K per associate (not including salary!)).  Axiom Law is a major player here, although this model is also being used by innovative smaller firms like Cognition LLP and Conduit Law.  These firms can provide a skilled lawyer (or team) to handle parts of matters, or entire matters, for an hourly-fee significantly below what any traditional firm can offer.  While Axiom has been handing it to BigLaw on their own turf recently, this model offers significant advantages to smaller companies as well, because of the inherent flexibility and cost savings it offers.
  • Value Pricing:  These firms are not your grandfather’s firms.  Their fundamental proposition is to offer value-based pricing options other than traditional hourly billing, including fixed fees, holdbacks, premiums and contingency agreements.  They also put their money where their mouth is – actually offering money back if the client is not satisfied with the quality of the work.  Examples of these value firms include Valorem Law Group, Summit Law Group and Miller Titerle.  Again, check out their excellent websites, and I dare you to give me a valid reason why you’d want to continue using Grampa’s old, stale firm.
  • Overall Legal Strategists:  As I discussed here, the importance of legal project management, both in initial scoping and execution, is fundamental to guarantee optimal use of legal spend.  As a company’s legal issues become larger and/or more complex, the use of consultants like Elevate becomes cost-effective.  These companies can offer needed guidance on the best allocation of resources to the best providers, i.e., LPO’s, e-discovery vendors, LPM development, selection of right law firm, and overall oversight and management of the entire matter(s).

As shown above, the EFA playing field has already been built.  It’s time to stop drinking the billable hour Kool-Aid. Enter the field of dreams instead.  Any of the above options are far better than continuing to write your old firm a blank check.  I guarantee it.

4 Comments leave one →
  1. March 20, 2013 10:39 am

    This is an excellent summary of the alternatives to the traditional billable hour relationship.

  2. March 21, 2013 7:22 am

    Interesting Mike…so much of the AFA discussion centers around the case “type”. We see great success in flat fee billing for some…but the larger complex litigation, require a lot more planning as you said in your article. These planning discussions early on promote buyin from both sides…and then there is a plan to follow and adjust as you go forward. AND then use that plan over and over. The savvy firms are really promoting this planning as a marketing tool. Any client would want to work under that transparent kind of plan…

    Any reason a law firm would not want to promote this early collaboration with their clients or prospective clients?

    [Originally posted on LinkedIn group “Legal Enterprise Collaboration”]

  3. March 21, 2013 9:23 am

    Tom:

    Good points. Spending resources on well-executed early case assessment and LPM is a no-brainer that will alway be a good return on ROI. As a client, I would not consider a firm that couldn’t demonstrate a specific plan for the matter BEFORE the matter is given to the firm. I agree that fixed fees are much easier in commoditized work, but complex matters can also successfully have fixed fees for each phase/stage. This, of course, assumes that upfront LPM has been fully fleshed out, which equals collaboration and transparency. Add in some well-designed success incentives (nothing like good old-fashioned self interest to inspire efficiency and effectiveness) and you are well on your way to “win-win.”

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