“The growth of AFAs has been much slower than many predicted, remaining at roughly 16% of revenue in 2015…
… Most of the resistance has come from clients who are not comfortable with what law firms have proposed as AFAs, and would rather stay with hourly rates and discounting.”
[Both of the above are taken from the recently published 2017 Client Advisory, by Citi Private Bank and Hildebrandt Consulting Inc (see page 9)]
I completely understanding why clients feel frustrated with the so-called Alternative Fee Arrangements (AFAs) that law firms often propose to them and are pushing back on these. Whenever you discuss AFAs with law firms, all you tend to hear is talk of ‘fixed fees’, ‘capped fees’, ‘success fees’, ‘risk collars’ and other such loft terms, more often than not being held as if they were innovative disruptors in the way we price legal services when the reality is 99.9% of them have the billable hour underpinning them and have been on the pricing menu for more than two decades. So why shouldn’t clients just go with a standard billable hour and get a 10% discount at the end of the matter – much simpler and proven route (and, as a side note, interesting to see the report continues to show realization rates on the slide!).
No, as a profession, the time has come to accept that if we want to be real about offering clients alternatives to the billable hour then we must get on the front foot and become more creative about what we are offering them. And the best, and possibly only, way we will achieve this is if we start to have conversations with our clients about this.
And herein lies both a solution and a way forward!
In another recently published report – the 2016 Legal Department In-Sourcing and Efficiency Report: The keys to a more effective legal department by Thomson Reuters (see page 16) – ‘Use of budgets for matters‘ smashes ‘Alternative fee arrangements‘ (59% to 31%) as the most popular answer to the question around what strategies are being used to manage outside legal costs.
Given this was a survey of 429 attorneys and operational professionals working in corporate legal departments by Thomson Reuters, you would think it would be a good indicator of in-house aptitude (side note: notice only 1% mention Reverse auctions? Definitely not reflective of the noise being made in the market around these!)?
Anyhow, here’s a Holidays thought for those law firms looking for alternatives to the billable hour that might actually (a) pay them some money, and (b) have the support of their clients:
go and speak to your client about use of budgets for matters.
After all, surely all those pricing directors, legal project managers, process improvement directors, innovation officers, etc talk with each other every now and then and come up with something helpful and original along these lines!
Happy holidays to all.