Alternative Fee Arrangements – Pros & Cons

We hear more about alternative fee arrangements versus task-based hourly billing. Legal trade magazines heavily discuss AFAs, and their use is increasing. There is no clear consensus on either method. However, with the right information, we can form a clearer picture. One way to do this is by exploring the pros and cons of AFAs.

There are a number of different kinds of AFAs with different sorts of collars, rewards, hold-backs, capped fees, flat fees, and so forth. As with anything, there are good and bad points, so we explore the pros and cons of alternative fee arrangements versus traditional billing.

• Makes costs more predictable
• Simplifies budgeting or really eliminates it
• Reduces potentially contentious billing issues between clients and firms
• Begins to promote project management for litigation

• Loss of transparency, i.e., not being able to see the details behind the bill
• Thwarts in-depth analysis across different groups, tasks, rates, etc
• Cost savings are seldom realized

Many of our clients use AFAs in various forms. These clients often also require a shadow task-based bill so that, from a modeling perspective, they have the ability to see how accurate of an estimate that alternative fee arrangement was.

It’s important that the alternative fee arrangement be a win-win situation. There has to be a way to make sure that the corporation has savings and that the legal team is paid for the value of the work they’re doing.  And there can’t be an agreement to spend a particular dollar amount over the course of a year or two on litigation without being able to fully comprehend what the actual costs were.

We truly think that the best way to accomplish this goal, from what we’ve seen from our clients, is through a completely collaborative position where all billing detail – whether it’s against AFAs, budget, or something else is transparent. Such transparency helps our clients report more accurately moving forward. Having all the information at their fingertips for both the AFAs and the accompanying shadow task-based bills gives all parties a full understanding of where they spent and on what.

You will better understand AFA pros and cons and the capabilities possible with Advanced ELM tools. If you have questions about alternative fee arrangements, contact us.