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An A for Alternatives: AFAs Are Here to Stay

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An A for Alternatives: AFAs Are Here to Stay

Nov 1, 2012, 07:00 am CDT

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While the study ALM Legal Intelligence did for LexisNexis CounselLink is cautious in its analysis, it shows some progress in the use and the future of alternative fee arrangements, or AFAs, as a replacement for standard billable-hour invoicing.

Citing “the economic collapse of 2008 to 2010,” the study notes, “alternative fee arrangements obtained a new urgency.” Increased use of AFAs shows in the results.

“Of the 218 law firm respondents, only one reported that their firm does not employ alternatives to the hourly billing rate model other than discounting. On the legal department side, 18 percent of the 206 corporate respondents reported that they do not employ AFA billing.”

“About 62 percent of firms saw an increase in AFA billing, with only 2 percent citing a decrease. … One in two legal departments saw an increase, and the other half say that the degree of AFA billing has essentially remained the same,” the report says.

The survey also found that “about 84 percent of legal departments [report] they are ‘somewhat’ or ‘very satisfied’ with AFAs. Comparatively, 72 percent of law firms gave AFAs the same satisfaction rating.” The study notes that “the difference was even sharper when looking at only those that were ‘very satisfied’: 26 percent of legal departments vs. 11 percent of law firms. This suggests that full acceptance of and satisfaction with AFAs still has a ways to go.”

However, some reason for that difference might be seen in the perceived benefits of AFAs. Clients cite cost predictability and savings as the top benefits; firms see attracting clients as the top benefit, and cost savings are in fifth place.

Still, both clients and outside firms agree that AFAs are a permanent part of legal services billing, with 88 percent of legal departments and 92 percent of firms saying AFAs are here to stay.

Data was collected via email invitations to a Web-based survey conducted in March and April. Invitations were sent to senior management in corporate legal departments for one survey. Among the responding law departments, 206 opted in to the survey and 141 were qualified to respond because the law department uses AFA billing methods. Invitations for a separate but similar survey were sent to partners at Am Law 200 and National Law Journal 250-size (large) law firms; 218 firms opted in, and 194 qualified to respond.

Data excerpts from Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments by ALM Legal Intelligence’s Erik Sherman (writer) and Jennifer Tonti (editor). Sponsored by CounselLink from LexisNexis.

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