While many of our clients prefer to work with us on a traditional hourly fee basis, a growing number of larger corporations are seeking Alternative Fee Arrangements (AFA) as a way to structure their legal matters with outside law firms. We have significant experience in AFA and are comfortable working with our clients on that basis at their preference. Below is a bit of information about the history of AFA followed by examples of successful AFA we have developed.
History of AFA
Ever since the “DuPont Model” emerged in 1992, corporate legal departments have been looking for new and innovative ways to reduce costs. This ground breaking model encouraged law firms and corporate legal departments to work together to improve the quality, cost and efficiency of legal services, to develop incentives for creating economies of scale with third party vendors and to create alternatives to traditional hourly billing models.
With the onset of the Association of Corporate Counsel’s (ACC) Value Challenge in 2012, outside law firms have been increasingly challenged to develop strategies and service models to help meet increasing budget pressure on in-house counsel by providing greater predictability in outside legal fees.
In spite of these trends, there has been a great deal of discussion about AFA, but few solid programs have come to fruition. Most offered little more than a reduction in the existing hourly billing rate of outside law firms. As a result, many corporate law departments have lost confidence in the capability of outside law firms to truly implement AFA.
However at KBY we have successfully crafted innovative AFA based on client needs, preferences and a value-based billing approach. We pride ourselves on these successful arrangements, which have helped interested clients meet their internal corporate budgeting guidelines for outside legal fees by containing unpredictable costs. We welcome the opportunity to explore such a creative billing approach with your company.
The Growing Power of the DuPont Legal Model Network: Two Decades of Innovation, Partnership and Community Outreach
DUPONT LEGAL MODEL
Videos courtesy of Justin Miller at DuPont Legal (source).
KBY AFA Successes
Flat Fee to Try a Case Proves to be a Winning Strategy
In a hotly contested case, our client was preparing for mediation and struggling with how hard a line to take in settlement negotiations. How much might it cost to try the case? How confident were we in the outcome? Was the expense worth it? To help our client in its decision making, we proposed a flat fee to try the case with a success bonus if we prevailed at trial.
Our client was able to put a hard number on the potential future costs of litigation and liked the fact that we were willing to “put some skin in the game.” The client felt confident taking a hard line on settlement. After calling the other side’s bluff, the case settled for a small fraction of what the client was previously willing to pay.
The Risk of Early Mediation
A major corporation was faced with a potentially significant legal claim and the opportunity for a pre-complaint mediation. In-house counsel had a difficult decision to make. Did it make sense to spend the time and money to mediate at such an early stage? Would outside counsel know enough to meaningfully assess the claim? What were the prospects for settling at such an early stage? Based upon preliminary information about the potential case, KBY felt an early investigation and mediation would be beneficial to our client.
To assist in the client’s decision, we proposed a discounted flat fee for both the investigation and mediation, with a success bonus based upon criteria selected after discussion with the client. Our investigation permitted in-house counsel to evaluate the claim at a very early stage, and we accurately projected the likely range of settlement. As a result, the matter was resolved at mediation, and our client was able to avoid fees and risks associated with litigation. The client gladly paid our success bonus.
An AFA for Future Litigation
The Law Department of a major national corporation was faced with the task of preparing a budget for future employment litigation throughout California. We proposed a fixed monthly retainer with an agreed-upon scope of work and periodic re-evaluation of the retainer amount.
The arrangement allowed our client to accurately project their outside legal costs while providing us the freedom to provide the client with a high level of service without fear of exceeding the client’s budget.