Are Alternative Fee Arrangements (AFAs) a Flash in the Pan?

 

It is de rigeur to assert that AFAs are creating a revolution in the legal services profession, but is it actually a case of the grass being greener on the other side of the fence?

I have participated in AFAs and will no doubt do so in the future, but I have argued that the billable hour will never be replaced as the primary method of lawyer payment. If corporate counsel are merely willing to put into hourly billing matters the same degree of active involvement as is necessary to implement proper AFAs, the billable hour will almost always come out on top because the client retains control.

Interesting bits of information on the AFA vs. Billable Hour debate now come out on an almost daily basis. The following seemed worthwhile of mention in this respect. A recent article (“Survey: In-house counsel cutting legal spending” by Allison Petty in the Chicago Daily Law Bulletin, March 10, 2010, Vol.156, Issue 47) reviewed the results of this month’s Association of Corporate Counsel’s Chief Legal Officer survey. She noted the following about the survey responses:

“Additionally, a large disconnect seems to remain between how much corporate attorneys want to use alternative-billing practices and how much they are actually using them.

Asked, “Would you like to increase the percentage of work handled by outside counsel on alternative-fee arrangements?” 79 percent said yes.

But only 4 percent said they used alternative fees for more than half of their work with outside counsel. The bulk of respondents — 68 percent — said they use alternative fees for 10 percent of work or less.

Still, alternative-fee use has increased from 2008 survey results, when 78 percent of respondents said 10 percent or less of their outside counsel spending was structured around alternative-billing arrangements.”

Ms. Petty then quoted two corporate legal officers regarding their experiences with AFAs, as follows:

“Ronald E. Potempa, associate general counsel at Infor Global Solutions (Michigan), Inc., said his company had tried blended rates and found that they sometimes did not work out well because outside counsel spend less time on the matter.

‘Quite frankly, at the end of the day, we were just glad to get back to normal billing,’ Potempa said.

Alternative billing rarely works for PepsiAmericas Inc., said the company’s senior vice president of legal and government affairs, W. Scott Nehs.

Because the company operates across state and country lines, alternative billing can make matters too complicated, Nehs said. In other words, he said, ‘the juice isn’t worth the squeeze.’”

I really like the way Mr. Nehs put it: “The juice isn’t worth the squeeze.”

I’m sure we will see more AFAs, but hourly billing is here to stay.