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Posts tagged AFA
The Billable Hour

The debate about whether the billable hour is an outdated unit of measurement has been discussed and still continues. More law departments are exploring options to implement alternative fee arrangements (AFA) with their outside counsel.  Microsoft wants 90 percent of its legal work performed under AFAs and 30 percent of respondents in Deloitte's Future Trends for Legal Services mentioned fixed or capped fees regarding purchasing legal services.

But the billable hour continues to be the standard because it is quantifiable and ingrained in the culture of the legal industry.  Despite all the complaints the billable hour is still the most predictable way to gauge the value and effectiveness of certain practices such as litigation.  There are risks that come with an AFA/fixed fee arrangement to both the law department and the law firm.  Firms may incur a loss if they don't budget properly and law departments may overpay when it could have been cheaper to pay by the hour.  AFAs have a place and will continue to become more commonplace particularly with more predictable matters.

Despite the disdain of the billable hour by many people it doesn't seem like it will be replaced anytime soon.  Yes, the billable hour can lead to unethical billing practices but that doesn't mean a new blanket solution is necessary.  Using a combination of technology and relevant metrics to analyze cost, value, and efficiency of services purchased or provided is a better solution before making a decision.

A Growing Uneasiness Between Firms And Clients

Recently, there have been articles discussing the shift to alternative fee arrangements (AFAs) and whether law firms are too quick to comply with client demands regarding billing practices.  In an industry where firms have thrived on the billing hour this shift can be worrying to law firm leaders.  You can read about it here, here, and here.

The legal industry is changing with technology presenting new solutions to help law firms and corporate legal departments stay competitive.  Yes, clients are demanding more transparency and efficiency from their outside counsel.  There will be more AFAs but the billing hour isn't going away anytime soon.  We believe these market disruptions aren't problems but opportunities to add value and develop differentiation amongst the competition whether you are the law firm or client/company.

This quote best sums up how we think law firms and corporate legal organizations should tackle the changing market landscape:

"These leaders don’t shy away from market problems. They pursue the best solutions to better continue navigating their firms and law departments with fearlessness, confidence, and security."