While alternative fee arrangements are gaining popularity, data recently collected by the consultancy Blickstein Group Inc. shows that discounted hourly billing rates are still much more common than AFAs.
The Ninth Annual Law Department Operations Survey, produced by Blickstein in cooperation with the legal consulting and services company Consilio, looks at feedback from more than 100 law department professionals. A supplement to the report is available here. The full 45-page report, which was provided to Corporate Counsel, is available by request to Blickstein.
The majority of respondents—70 percent—said that between zero and 30 percent of their outside legal work is done through AFAs. Less than 2 percent of respondents said that between 71 and 100 percent of their outside legal work is done through AFAs.
A number of impediments to using alternative fee arrangements were offered by respondents, including a law firm’s unwillingness, not knowing which AFA to use and no internal impetus to change the current system. The greatest number of respondents, 36 percent, said the unpredictable nature of matter activity is the biggest thing standing in the way of using an AFA. The second-most-cited reason was a lack of data.
Law departments that want to use AFAs are in a position to make it happen, Josh Rosenfeld, vice president of legal services at legal services provider QuisLex, said in a Dec. 14 webinar about the results from the study. “Clients have way more leverage than I think they realize they do with respect to negotiating AFAs with their law firms,” he said. “And each of these impediments can be overcome and it is not a terribly high bar.”
For example, for law departments worried about the unpredictability of matters, Rosenfeld said there are options like capped fee or fixed fee arrangements with provisions that allow for scope of work changes.
And on the concern that firms don’t have the necessary data available to suggest an AFA, Rosenfeld said law firms are becoming increasingly sophisticated with budgeting tools. “If your firm is telling you they are not in a position to propose an AFA because of a lack of data, you can easily find another firm to do that,” he said.
The report also reveals that the law department operations (LDO) role is alive and well in legal departments and that LDO professionals are achieving a higher degree of responsibility, with 59 percent of the respondents reporting directly to the general counsel or chief legal officer—up from 50 percent last year.
Another 17 percent report to the deputy, associate or assistant general counsel. “The LDO professional is a very strategic role. Because of the scope of work the LDO professional touches, they need to be at the right hand of the general counsel,” Elizabeth Jaworski, director of legal operations at Motorola Mobility, said in the supplemental report.