Business of Law

Alternative fee arrangements have plateaued, survey author says

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Two surveys of in-house counsel have drawn similar conclusions: There is some inertia in their use of alternative fees to control law firm costs.

The use of alternative fee arrangements has plateaued, according to Saul Perloff, a partner with Norton Rose Fulbright who worked on the law firm’s 2017 Litigation Trends Annual Survey. He spoke with Bloomberg Big Law Business about the findings.

Many cases “simply don’t lend themselves to the use of an AFA,” Perloff told Bloomberg. The use of alternative fees could increase once again, he said, if people begin to experiment with fees in novel ways.

Fifty-six percent of corporate counsel surveyed by Norton Rose said they used alternative fee arrangements, and 96 percent said they were satisfied with those arrangements, according to a press release and report, which can be downloaded here.

But the percentage of companies using such arrangements has remained below 60 percent since 2011, Perloff told Bloomberg. The study is based on a poll of more than 300 corporate counsel, primarily representing U.S.-based organizations.

The most common type of alternative fees were fixed fees, used by 77 percent of the respondents, and capped fees, used by 53 percent.

Another study of corporate legal departments by Thomson Reuters found use of alternative fee arrangements remains at low levels. The study found that 83 percent of legal department use alternative fee arrangements, but 55 percent use them for less than 20 percent of their legal spend. A press release is here and the study can be downloaded here.

Corporate legal departments reported their most effective cost controls are enforcement of billing guidelines, reductions on invoice expenses, and working with law firms that show their value.

Thirty-four percent of the legal departments surveyed by Thomson Reuters said they had increased the use of alternative fees over the last six months; departments with mid-range spending had the biggest increases.

Thomson Reuters calls its report the Legal Tracker Index. It is based on data from more than 1,100 corporate legal departments who are its Legal Tracker customers and a survey of 155 legal departments on their use of cost controls.

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