Beneficial for Law Firms and Clients
and more business clients enter into
Alternative Fee Arrangements (AFAs)
with their lawyers. Clients like the idea of
the certainty and predictability an AFA
provides, and they like the assurance that
they can pick up the phone to ask you a
question without increasing their costs
with every tenth of a minute they are on
the phone.
According to the BTI Consulting
Group, outside counsel spending under
AFAs was up to 35.6 percent in
Almost 70 percent of companies polled
were using AFAs for at least some portion
of their legal work. Companies report on
average that they are saving around 14
percent when using AFAs. In another
survey conducted by LexisNexis, with 135
companies responding, the majority of
respondents expressed a satisfaction with
AFAs, many even suggesting that they
hoped to increase their use of AFAs in the
years to come.
Many lawyers' initial reaction to this
news is negative. Lawyers assume AFAs
will cut into their fees. But that does not
have to be the case. In fact, if employed
smartly, AFAs will not only make clients
happier, but can help law firms increase
overall business and profitability.
LexisNexis responded that they believe
pricing/fee structure to be the top issue
facing the legal industry and their legal
departments. Interestingly, as hourly
fee rates continue to rise, a majority of
corporate counsel polled actually said
that their legal budgets had been cut
in the past few years. These competing
trends obviously make extracting the
most value in the most efficient means
possible, an important goal as businesses
deal with their outside attorneys.
Businesses also enjoy the
predictability that can be provided
through various AFAs. It's no secret that
the ability to accurately forecast costs
is one of the most important criteria
to whether a business venture will be
profitable. In my own conversations with
business owners and corporate counsel,
hourly fee-based litigation almost always
ends up costing more than expected, as
unforeseen issues invariably arise. And
whether this a legitimate complaint or
not, it is reality that clients often get
frustrated with the idea that every time
their lawyer picks up a pen or has a
thought process that involves their case,
it is costing them money.
In our experience, when we express
enough of an understanding of a client's
business to offer them AFA options that
help make them more efficient, and
their costs more predictive, they are
incredibly appreciative. Many of the
AFAs offered also shift some of the legal
fee risk to the law firm, which again is
appreciated by clients, as they perceive
our interests becoming more aligned.
This often leads to more business,
not only from the client, but also from
referrals the client makes.
Fee Arrangements
the law firm receives a fixed or scaled
percentage of any recoveries in a lawsuit.
The nice thing about this arrangement
for the law firm is that the client pays
all expenses. These arrangements are
appreciated by smaller companies
and start-ups who do not have a large
legal budget. This type of arrangement
obviously works best on a plaintiff claim,
but it can be structured as part of a
defense claim also, wherein the payment
is made contingent on a percentage of
savings off of a set agreed to amount.
LLP, where he specializes in civil litigation,
products liability, personal injury and insurance
coverage. He has represented several
corporations and businesses in their litigation
and pre-litigation needs, while also representing
injured victims.
1609 Shoal Creek Boulevard
Austin, Texas 78701
shawcowart.com