Alternative fee arrangements
Encyclopedia
Alternative fee arrangements (AFAs), in the practice of law
, occur when payments to a law firm are based on a method other than billable hours.
The classic example of an AFA is the contingent fee
, sometimes called contingency or conditional fee, in which a law firm collects its fee as a percentage of the money won at trial
or on settlement; the client generally pays nothing unless the legal action is financially successful. However, AFAs—especially in the practice of corporate law
—encompass a large variety of arrangements in addition to contingent fees:
Various firms and corporation
s are credited with leading the way in AFAs. Leading the charge are corporate clients such as Du Pont, Cisco
, and FMC
. Corporate clients are looking for a combination of cost savings, cost certainty, and alignment of law-firm interests with corporate interests in avoiding an excess of hours worked—and billed.
Law firms such as Valorem are taking the lead in proposing AFAs.
Firms are learning that succeeding without cost overrun
s in AFAs means treating the cases as projects, mapping project management concepts
onto the legal world.
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, occur when payments to a law firm are based on a method other than billable hours.
The classic example of an AFA is the contingent fee
Contingent fee
A contingent fee or conditional fee is any fee for services provided where the fee is only payable if there is a favourable result...
, sometimes called contingency or conditional fee, in which a law firm collects its fee as a percentage of the money won at trial
Trial
A trial is, in the most general sense, a test, usually a test to see whether something does or does not meet a given standard.It may refer to:*Trial , the presentation of information in a formal setting, usually a court...
or on settlement; the client generally pays nothing unless the legal action is financially successful. However, AFAs—especially in the practice of corporate law
Corporate law
Corporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate law is a part of a broader companies law...
—encompass a large variety of arrangements in addition to contingent fees:
- Fixed fees, where the firm handles a single case (or portion of a case) for a pre-specified, negotiated amount.
- Flat fees, where the firm handles a "book" of cases (multiple similar cases) for an agreed negotiated total. There may be a specific number of cases, or the agreement may be for all cases of a specific type that occur during a set time period.
- Bonus arrangements, where the firm receives an extra payment that depends on case resolution, such as level of success, speed of resolution, or cost savings.
Various firms and corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s are credited with leading the way in AFAs. Leading the charge are corporate clients such as Du Pont, Cisco
Cisco
Cisco may refer to:Companies:*Cisco Systems, a computer networking company* Certis CISCO, corporatised entity of the former Commercial and Industrial Security Corporation in Singapore...
, and FMC
FMC
-USA:*Federal Maritime Commission, federal agency responsible for the regulation of oceanborne transportation in the foreign commerce of the U.S.*FMC Corporation, ticker symbol FMC, formerly Food Machinery Corporation and Food Machinery and Chemical Corporation...
. Corporate clients are looking for a combination of cost savings, cost certainty, and alignment of law-firm interests with corporate interests in avoiding an excess of hours worked—and billed.
Law firms such as Valorem are taking the lead in proposing AFAs.
Firms are learning that succeeding without cost overrun
Cost overrun
A cost overrun, also known as a cost increase or budget overrun, is an unexpected cost incurred in excess of a budgeted amount due to an under-estimation of the actual cost during budgeting...
s in AFAs means treating the cases as projects, mapping project management concepts
Legal Project Management
Legal project management is the application of the concepts of project management to the control and management of legal cases or matters. Practitioners of legal project management apply it to the mechanics and business of providing legal services rather than to the substantive legal work...
onto the legal world.