Balance client cost predictability with law firm profitability for long-term success
For Law Departments
The general goal of an AFA is to increase the predictability of total legal costs (the sum of attorney fees, third party costs and settlements/judgments paid) in a way that is economically viable to the firm on a long-term basis, without compromising the ethics of rigorous and high-quality legal representation. This objective should be tailored to suit your needs.
For Law Firms
Alternative fee arrangements deliver the cost predictability your clients demand, but shift the risk to you. Moreover, clients want to be sure their firms can be consistently profitable under AFAs. This requires a new approach to how you do business. LegalEye’s® AFA Advisory services focus on increasing utilization through continuous process improvement, measuring and managing profitability through actionable financial and operational reporting and analysis, and benchmarking firm performance against peer groups.
Any successful AFA must be a collaboration between the client and the firm. In order to balance client cost predictability with law firm profitability, our approach emphasizes the following elements:
- Clear and achievable win definitions
Clear and Achievable Win Definitions
Based on the nature, variability and level of total litigation costs, we will work with you to develop initial win definitions for each applicable docket segment. Win definitions should incorporate duration, settlement amounts, outside legal and third-party costs. They should also emphasize early case assessment and budget performance. Of course, these win definitions will need further refinement when engaging outside counsel in AFA discussions.
In addition, how a goal is achieved can be just as important as the result itself. That is why win definitions should consider the amount of time spent in early case assessment relative to other tasks and phases like depositions and other discovery. Reducing settlement amounts may be possible if the firm were to spend proportionally more time in ECA and develop more effective strategies for increased settlement leverage. This should also improve budget performance, so that client expectations are met over the life of the matter(s).
No plan is perfect, and there will be instances in which matters that initially present as being within a defined AFA segment become outliers as more information is available, despite the best efforts during early case assessment. Provisions should be made for such “safety valves”, at which point outside counsel would revert to hourly billing.
Contractual and operational fidelity is paramount in AFAs. Some AFA provisions may sound great in theory, but are difficult if not impossible to measure in practice. To the extent possible, our recommendations will reflect your current systems, processes and capabilities, and will further provide RFP requirements for outside counsel.
Transparency is closely related to measurability. Any AFA management process and its performance metrics must be clear to all stakeholders. No measures should be coming out of “black boxes”, and results and the cost thereof should be periodically communicated, based on the nature of the matter(s) in question.