LexisNexis CounselLink provides a concise overview of alternative fee arrangements (AFAs) for legal billing. This presentation is useful for corporate legal departments and law firms alike and covers: AFA definitions, AFA types, market statistics on usage, examples of how AFA modeling and a methodology for implementing AFAs.

1. Implementing AFAs without FUD
(Fear, Uncertainty, Doubt)
Brandi Gunn

2. • Billing arrangement between clients and firms
requiring billing by law firms in something other
than standard detailed hourly model
• In other words, Not Hourly!
AFAs Defined

3. • More than 50% of CounselLink
customers and their law firms
• 2012 to present
– Over 44,000 AFA matters
16% of total matters
– Over $600m in fees submitted on an
AFA
9% of total fees submitted
Who uses AFAs?

4. Other
8%
Commercial and
Contracts
19%
Corporate
, General,
Tax
4%
Employment and
Labor
8%
Environmental
1%
Finance, Loans and
Investments
14%
IP - Other
10%
IP - Patent
7%
IP - Trademark
6%
Insurance
9%
Litigation - General
6%
Mergers and
Acquisitions
4%
Real Estate
1%
Regulatory &
Compliance
3%
% of Total Matters Using AFAs
AFA Matters by Industry

5. Other
4% Commercial and
Contracts
12%
Corporate, General, Tax
14%
Employment
and
Labor
3%
Environmental
0%
Finance, Loans and
Investments
7%
IP - Other
2%
IP - Patent
10%
IP - Trademark
0%
Insurance
14%
Litigation - General
21%
Mergers and
Acquisitions
1%
Real
Estate
0%
Regulatory & Compliance
12%
% of $ Using AFAs
AFA Spending by Industry

6. • Predictability
– Cash flow
– Matter cost
– Department budget
• Reserving
– self insured retention, reinsurance, or premium impact
• Share risk with the firm
• Cost reduction
• Efficiency
– Faster and easier to review/approve invoices in CounselLink
• Use for vendors such as copying, court reporting etc.
Why would you want to use AFAs?

7. • Discounted
hourly rates
• Volume
discounts
• Blended rates
• Retainers
Hourly-
based
• Fixed / Flat
Fees
• Contingency
• Success
incentives
• Collared
arrangements
• Capped fees
• Hold backs
Risk-
based
• Stage / Task
based
• Hybrid
• Market priced
fixed fees
• Bundled pricing
Value-
based
Non Hourly – “True Alternative Arrangements”Hourly – Alternative or
Not?
Types of AFAs

8. • Law firms provide a specific service for a set price
• Used when the total scope of work is routine, repetitive and scope is easily defined
• Examples: Workers Compensation, Investigation and Advice
Fixed or Flat Fees
• Discrete related tasks with a clear deliverable at the end of each stage
• Works best with Transactional matter types such as Immigration & IP
Staged / Phased Based
• Mix of different models such as fixed fees for initial / discovery stage and then hourly for trial preparation
followed by fixed for actual trial.
• Common areas of use: Litigation & Employment
Hybrid
• Client makes a deposit against charges for future services or
• The law firm guarantees availability for a specific period of time
• Supports a more consistent / predictable cash flow
Retainers
• Client pays the law firm based on the results achieved
• Payment can be expressed as a percentage of the recovery, settlement or amount saved
• Most common in debt recovery / collections
Contingency Fees
Most Common AFAs

9. • Request for proposal (RFP) model
• Parameters of matter are laid out up front and then provided out to law firms for submission of best price
• Commodity type matters such as low dollar insurance defense or advice
Market Price
• Reduced hourly fees by biller / level for specific matter types
• Typically coupled with some sort of bonus for meeting desired outcome
Discounted Hourly Fees
• Pay the law firm up to a specified maximum amount
• Can encourage efficiency, but considerably more risky for the law firm
• More common in transactional matters
Capped Fees
• Agreed upon total fees (see Capped Fees above)
• Often a 10% collar (overage/underage) credited or paid
• Credited or paid amount is typically 50% of normal fee
• Limits risk to both client & law firm
Collared
• A portion of the total fee is held until an agreed upon milestone or result is delivered or until the completion
of the case
• Used in debt recovery
• Can be objective or subjective, client discretion based on satisfaction
Holdback
Other AFAs

10. Mechanics of AFAs
• Hourly Fees
• One time fixed amount
• Fixed amount, billed multiple times:
– Daily rates
– Filings etc.
• Expenses are separate
Never locked into one arrangement permanently

11. Examples of AFAs
Litigation
1. Investigation
2. Discovery
3. Trial Preparation
4. Trial
5. Appeals
Trademarks
1. Initial Investigation / Admin
2. Trademark Investigation
3. Application Preparation
4. Renewal
or
5. Prosecution

12. Examples of AFAs
Recovery
1. Demand Letter
2. Default Judgment
3. After answer up to trial
4. Trial
5. Post trial
6. Filing of Abstract Judgment
7. Execution of Judgment
8. Debtors Exam
9. Subsequent Execution of Judgment

13. • Mining data:
– Which practice area is best served with AFA?
– What is the right AFA?
• By practice area, matter type or line of business
– Where will I get “the biggest bang for my buck”?
– Which of my firms will work with AFAs?
– How do I know what to pay on an AFA?
– Is an AFA project worth the effort?
• How do I manage AFAs?
• How do I measure success?
Customer Challenges

14. • Firms can be risk averse
– Will they lose money on the project?
• Traditional law firm internal compensation models
are based on the billable hour
• They don’t know what to charge
• May be hard to report / track results
Law Firm Challenges

15. Plan
Design
Test
Deploy
Validate/Repeat
as necessary
Methodology to Implement

16. • Plan
– Drive this through your LDO, Not OC
– Determine your primary and secondary goals
– Make sure they are quantifiable & reportable
• Determine your long term reporting needs by matter
type
– Mine your data
• What matter types do you have?
• What are the rates, hours & totals you are paying
(include disposition)
• What is common for similar customers?
• Do you have preferred firms? Can you group them in
some logical manner?
– Are your ideas consistent with your overall LDO
strategy?
Methodology to Implement

17. • Design
– Don’t re-invent the wheel, use your resources
• LexisNexis Strategic Consulting Group
• ACC Value Challenge materials
• Volumes of articles and material on the internet
– Model them off of actual billings & goals
– Total costs should include disposition averages
– Plan for the “opt out” use cases
– Collaborate with 1-2 key partner vendors
Methodology to Implement

18. • Test
– Work with your key vendors to test the agreement
first.
• Is it easy to understand?
• Is it easy to set up fees initially?
• Are the stage / type transitions, if any, clear?
– Pilot the agreement. Assign appropriate sample
set of matters to your pilot firm(s).
– Make sure the way you want the AFA to work also
works for them
Methodology to Implement

19. • Deploy
– Develop Training / Law Firm Job Aids based on
learnings for full deployment
– Remember you can change model “mid-stream”
• Repeat as necessary
Methodology to Implement

20. • Did you get the value you
anticipated?
• What was the total cost of
the case (time + expenses
+ resolution costs)
• How was Firm
participation?
How to Measure Success

21. Sample Reports

22. Sample Report – By Law Firm

23. Sample Reports

24. Sample Reports

25. 1. Define your objective & scope
2. Research models that resonate with your company /
firms / operational model
3. Plan / design with LexisNexis Strategic Consulting
4. Monitor your results / success
Key Takeaways

26. Additional Resources
• AFA related posts on the Business of Law Blog:
– 10 Authentic Tips for implementing AFAs in Legal Billing
– Infographic Friday: The Case Against Billable Hours
– How Inside Counsel can Use Data and Analytics
– Four Reasons Why Alternative Fees are here to Stay
– Seven Essential AFA Articles Every Lawyer Should Read
• Connect and engage:
– LexisNexis CounselLink case studies, whitepapers, and webinars
– Blog: www.businessoflawblog.com/corporate-counsel
– Twitter: @business_of_law or @LNCounseLink
– Facebook | Google+ | YouTube
– www.counsellink.com