According to a recent survey conducted by the ALM Legal Intelligence and sponsored by LexisNexis Counsel Link, alternative fee arrangements (“AFA”) for legal services, i.e. billing methods based on a metric different from hourly billing rates, is failing to gain traction amongst lawyers. The survey is entitled “Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments”.
The survey found that only 6% of law firm respondents used an AFA in 2011 for more than 50% of their legal work. The majority of the respondents who used the AFA used them for less than 25% of their billing. Additionally, only 12% of legal department respondents used AFA’s for more than 50% of the legal work they assigned to outside counsel in 2011.
The survey further revealed that 6% of legal departments and 17% of law firms did not know what percentage of their legal work was billed using a method other than the billable hour or discounting their legal fees.
More than 200 law departments and more than 200 large law firms in the US were contacted for the survey.
The survey clearly shows that the billable hour method remains the most widely used method of preparing bills, notwithstanding that clients are dissatisfied with this billing method. Of some relief was the finding that the overwhelming majority of law firm partners and corporate legal executives expect the adoption of AFA’s to increase in the next five years.
The survey revealed that law firms and corporate legal departments offered differing opinions as to why lawyers were reluctant to adopt AFA’s. Some point to the lack of experience in defining and managing work and billing matters on a basis other than billable hours as an obstacle to adopting AFA’s.
All is not doom and gloom for AFA’s, however. Over half the law firms surveyed saw an increase in the use of AFA’s in 2011.
The top AFA’s used by both law firms and corporate legal departments were: 1. Flat fee arrangements; 2. Blended rates; and 3. Capped rates.
70% of legal departments surveyed predicted an increase in the use of AFA’s over the next five-year period. 74% of law firms expect an increase in AFA’s over the same time period.
LexisNexis has developed solutions to help law firms and corporate legal departments identify the types of matters that could best make use of AFA’s to track performance of the lawyers and to better predict costs. That can only be good news for clients who seem to want to move away from the billable hour model.