These days, alternative fee arrangements (AFAs), agreed upon between major law firms and their clients, have become commonplace as part of the “new normal” relationship between corporate America and their law firms. The old days of the billable hour are coming to an end, if they haven’t already ended. Although some commentators think AFAs are more discussed than actually used, there’s no question that they are here to stay.
The same can be said of the relationships between law firms and vendors such as litigation and trial consultants. At A2L Consulting, we are pioneering the use of AFAs in our dealings with law firms, and both sides are very pleased.
We recently conducted a survey of people who downloaded some of our e-books and asked: What is your biggest fear about using litigation consultants? Of five options, fully 62 percent said they were concerned about the price for litigation consultants’ services.
We are listening. In 2008, we pioneered fixed price arrangements for the preparation of trial graphics. It was a revolutionary approach that won A2L a lot of loyal customers who prefer predictability over uncertainty. In 2010, we announced fixed pricing for trial technician/courtroom technology support. In 2012, we announced fixed pricing for mock trials and some other jury consulting services.
These fixed price arrangements are just one form of AFA’s that we use. Why do this? Actually, we prefer AFAs. I think they are better for our clients and better for us.
Our clients in large law firms consistently tell us that they prefer alternative fee arrangements, because they only have to have one budget conversation with their corporate client, as opposed to the old way of an easy one up front and a hard one after trial, and because it is a “set it and forget it” system that allows the lawyers to focus on getting the work done. We like them as well, because they allow us to get paid on a timely and predictable basis.
I think a fixed price alternative fee arrangement is a pretty good form of AFA, but it's just not perfect for every case. Sometimes, things are just too unpredictable weeks before trial. So we have created a number of other pricing strategies and discounting methods that have also worked well for our clients. Since our litigation consulting services are similar to the "consulting" that a law firm provides to a client, each of these alternative fee arrangement methods is applicable for law firms as well.
1. Fixed Price: The key to a successful fixed price engagement is agreement on a scope of work. In agreeing to fix price, we normally make arrangements to have payments arrive at predictable intervals. It's a win-win for all involved unless the work departs significantly (upward or downward) from the scope.
2. Capped Fees: Keeping in mind the necessity of an agreed-to scope, capped fees allow a bit of flexibility by providing a not-to-exceed level of billing. This approach can be beneficial when both sides know there’s a good degree of unpredictability in how the trial will go.
3. Billable Hour + Floor and Ceiling: This approach keeps the traditional billable hour as the base but protects both us and the client in case the volume of the work proves to be greater or smaller than anticipated.
4. Blended Rate: We have a blended rate for each of our three service areas (jury/trial consulting, litigation graphics and courtroom technology support) and even a blended rate for any combination of these services. This approach allows for easier review of invoices since it is just naturally easier to evaluate a bill based on a number of hours rather than sort out the increased complexity of how various rates were balanced together.
6. Success Fees: Increasingly the litigation support world is seeing the use of success fees or incentive bonuses being used by clients looking to align interests with their key vendors. Agreements of this type should be crafted with the corporate client and not the law firm, since fee splitting is not allowed between law firms and legal support vendors that work with them.
7. Holdbacks: Similar to success fees, holdbacks are usually constructed to allow costs to be covered during the litigation and then a final amount to be paid after the engagement is complete. This amount may be voluntary, at the client’s discretion.
8. Firmwide Volume Discounting: For some large law firms, we offer across the board discounts up to 25 percent that are based on ongoing sales volume. After a threshold is reached in the first year or after it becomes obvious it will be reached, subsequent engagements are discounted so long as the volume levels are maintained. If you are a large law firm or corporation engaged in frequent litigation, this is a no-brainer.
9. Firmwide Marketing Discounting: For law firms that cannot achieve volume levels or those that want to avail themselves of discounts out of the gate, we offer a discount of up to 20 percent in exchange for helping us to market to their litigation counsel internally.
10. Litigation Financing: Relationships with litigation financing firms allow us to work at a reduced rate since they can be a frequent source of trial consulting work for A2L and because we refer them clients regularly.
11. Hard-line Estimates: If you have an estimate you can believe in, it can be nearly as good as the arrangements listed above – except when it’s not. Sometimes, through a combination of lowball estimates and trial teams who underestimate the scope of work, a hard estimate proves quite inaccurate, to the detriment of the relationship between the law firm, the client and the trial consulting firm. However, we have an 18-year history of providing firm estimates and know how to manage to them.
12. Settlement Insurance is a term we use to describe a discounting methodology that applies in cases like fixed price alternative fee arrangements. We agree to discount proportionally if a case settles rather than enforce a fixed fee.
In the environment of the “new normal,” law firms are proposing AFAs to their corporate clients, either because they want to or because they need to. Either way, they understand the importance of AFAs and their economic value. When it comes to paying the costs of a litigation consulting firm, they would like to benefit from AFAs as a client, and we think we can benefit as a vendor. Why shouldn’t people be able to agree on price and value -- whether it is for jury consulting, litigation graphics, trial technicians, or legal services? It's just good business.
Related articles about law firm economics, getting value from vendors and more:
- Trends in litigation for 2013
- When a simple product is the final one, how do we see value?
- FREE DOWNLOAD: Leadership Lessons and the Business of Litigation
- 9 Trial Graphics and Trial Technology Budget-Friendly Tips
- 21 Secrets for Using Litigation Consultants on a Tight Budget
- 7 Ways to Prepare Trial Graphics Early and Save Big $$$