I reviewed Fulbright's Litigation Trends Survey Report for Alternative Fee Arrangement (AFA) findings and came up with the following analysis.
It's clear from the Report that clients have a significant focus on reducing legal costs. It is also apparent that the focus on reducing costs will not be decreasing any time soon and is expanding in various markets. The result is a growing adoption of AFAs in the market.
AFA Highlights from the Report:
I - Who is using AFAs?
51% of those surveyed are using AFAs
Larger/Public companies are almost twice as likely to be using AFAs as small companies
(61% vs 37%)
II - Primary Reason for using AFAs:
78% said “Lower Costs”
18% said "Predictable/Fixed Costs"
Smaller companies are more cost sensitive – with 84% stating “Lower Costs”
The US Energy industry shows 83% choosing “Lower Costs” as the reason
III - Estimate of the percentage of your billings done via AFAs:
78% say that more than 10% of their billings are under AFAs
18% said that “50% or More” of billings are under AFAs
However, there are numerous regional and industry adoption variations.
IV - What types of AFAs are currently in use?
Fixed fee is #1 at 55%
In the US fixed fee use is a bit higher at 58%
In the UK - 74% report using contingency/conditional fees
Smaller companies appear to favor blended rates - 50%
The Energy sector prefers using fixed fees - 66%
V - Are the use of AFAs going up?
Only 1% expect a decrease in AFA use
37% expect their use to go up
45% of larger companies expect the use of AFAs to go up
Interestingly, the answers to the general, opened ended questions on the survey also touched on the AFA subject. These are were broader questions about the state of the industry. Two of the quotes from these answers sum up the sentiment.
"An intense drive to lower legal costs."
"I think alternative fees will become the norm, not the exception."
These survey results bring strong evidence that things have changed and will not be changing back. The strong consensus on cost savings and the expanding use of AFAs reflects this.
Given what I do for a living (AFAs) these findings do not surprise me. Based on what I am seeing now in the various AFA deals I handle, I expect this trend to continue into next year's survey results.