Use of Alternative Fee Arrangements to Pay for Legal Services Heats Up in U.S.
AFAs, which include a wide range of billing methods based on metrics other than an hourly rate, became more prevalent during the economic downturn at the end of the last decade as a way for corporate clients to extract greater value from their law firms. While they became more pervasive each year since then, they failed to gain the high level of traction that was predicted by many industry experts.
The ALM survey found that 19 percent of corporate legal departments used AFAs for more than half of their legal work last year, up from 12 percent who said the same thing a year ago, and 51 percent said that their volume of AFAs had increased in the past year.
However, it may be that the use of AFAs is being concentrated among fewer law firms who are willing to move away from their traditional billing methods in order to secure new client opportunities. The ALM survey found that just 3 percent of law firms used AFAs for more than half their work, down from 6 percent last year, and that just 3 percent of law firms said they initiated the majority of their AFAs with clients, down from 13 percent last year.
“What we’re seeing is that corporate clients are now becoming increasingly reliant on AFAs to help them rein in expenses,” said Kevin Iredell, vice president of research and continuing education products at ALM. “For law firms, this means that if they don’t fully embrace AFAs in their own business practices, they will become less competitive over the long run.”
Approximately 95 percent of law firms and 87 percent of corporate legal departments say that they use AFAs in some form, with half of law firms and 42 percent of legal departments reporting they now embrace AFAs in their business relationships. Perhaps not surprisingly, corporate clients tend to be more satisfied with using AFAs (24 percent very satisfied, 59 percent somewhat satisfied) than law firms (13 percent very satisfied, 53 percent somewhat).
To download the ALM report, please go to http://at.law.com/AFAReport.
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