We want alternative fees! This has become the new mantra of clients. Alternative Fee Arrangements (AFAs) are all the rage now and rightly so, given the state of things.
I’ve previously noted that clients, in addition to law firms, will need to change to adapt to AFAs. I’ve come to realize this is a deep-seated challenge and one not to be written off lightly.
The Hypothetical: Law firm offers client a fixed fee (the holy grail of AFAs) of $100k for a litigation matter. Client agrees, thankful the law firm is taking the risk on this matter. A week later the matter settles, based to a good degree on the law firm’s efforts. Should the firm be paid $100k? For all the talk about how fixed-fee AFAs will benefit clients, this scenario presents a challenge. From experience … the client is going to ask why they should pay the whole $100k fee. The law firm barely put any time into the case. How could they deserve that level of fee?
The point here is that clients have an implicit understanding that time equals value when it comes to legal services. This understanding exists based on years of experience. On an academic level, fixed-fees make perfect sense. But your gut may tell you something different when push comes to shove, like in our example above.
My read is that clients are really wanting efficiency in the short-run. They equate time with value, but they want to make sure that the value and therefore price equals the right amount of time. For the time being, this means they will almost always want to know “how many hours” did it take (and as an extension of hours “what is the rate?”). That’s the measure of value they have known and trusted for years.
I recommend law firms keep this deep-seated mindset in mind as they approach AFAs. A short-run focus on demonstrating efficiency will probably go a long way to keeping clients happy on the path to AFAs. As clients come to trust that AFAs equate value with price, then fixed-fee and other aggressive AFA engagements will become more palatable.