Toby Brown sat down with Shy Alter on Monday and had a great conversation on where law firms (and clients) are in the transition to Alternative Fee Arrangements (AFAs) versus traditional Billable Hour work. I’ve embedded the video (and it will pick up right as Toby is being introduced. It is a very informative 6 minutes, and is well worth your time regardless of if you know nothing about AFAs, or you’re the expert at your firm. I quickly put together a transcript of the interview, and really enjoyed the part where Toby talked about not doing AFAs or Legal Project Management (LPM) in a vacuum. Have the conversation with the client and find out where they are really wanting to go.

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Transcript (after Shy Alter’s intro)

SA: Toby, thanks for taking the time to join me today.
TB: Happy to be here.

SA: You’ve been on board last year [ILTA TV] and we had a great conversation. You’re out there on the ground dealing with issues related to AFAs, Alternative Fee Arrangements, and even more important, Legal Project Management (LPM), which makes it all happen. Without that, it would be very, very difficult to offer clients a compelling model that actually works, and for the firm to actually remain profitable. Which is very, very important. So, maybe I’ll start with AFAs. To what extent have they actually taken hold? To what extent do you have a higher percentage of matters that deal with some type of an actually AFA model?
TB: I think that’s a good question, and I think you see some of the articles and word on the industry that “no, they’re not here” because not 100% of our deals are AFAs. It’s a constant growth. It just continues and it starts to spread out into all the practices. I’ve been at three AmLaw50 offices in the past year and a half so I have a broader sense of knowledge. If I had to put a number on what I think, at the market level, are “non-hourly,” I’ll call it — we might redefine AFAs here in a minute — fixed fees, and what most people consider to be alternative fees, I’d guess it’s around 20%.

SA: Which is a significant change over the last five years?
TB: Oh, yeah. I would say that five years ago it would have been 5%. Because then you’ve had your long-term, contingency fee work that firms did. So, 5%. It’s been around for a really long time. It’s just been growing and growing.

SA: So, clients are demanding these obviously. That’s always where it’s coming from, and the firms are actually responding. Do you have a sense of whether it is taking hold more in larger firms as opposed to medium or smaller sized firms?
TB: Yes. Definitely more so with larger firms. However, in fact, through ILTA we are forming a group of Alternative Fee and Legal Project Management people, which is growing by leaps and bounds. But, when we tried to reach into the more mid-sized firms, we’ve had a hard time finding people that do this. I know there has to be people that are touching it in some way, but not to the level that larger firms.

SA: What are the most popular modules within AFAs?  There’s all kinds of ways of slicing this one.
TB: In terms of the types of Alternative Fees?
SA: Yes, in terms of the types of Alternative Fees.
TB: You know, I did a presentation about a month ago with a guy that is very well known in the AFA world, Jeff Carr. He is with FMC Technologies which is in my hometown of Houston, and he and I have become good friends. And, he calls it a “Budget with Consequences.” And, I think that is a good way of putting it and it might encapsulate a few different types of AFAs, but that would focus more on a ‘fixed-fee’ or a ‘fee cap’ or some level where you’re saying “I’m buying whatever type of service, and this is the amount I’m going to pay.” I would say that that one is growing. However, I still see quite a mix.

SA: I’m going to jump into the Legal Project Management because I know we are spending more time on it now days. It is kind of the framework that makes AFA’s possible, to a large extent.
TB: Yes. Well, I’m going to redefine AFAs. I’ve defined it as … well, I sort of undefined it and say “What’s not an Alternative Fee?” and that is “Anything where we get to name our rate as a firm bill how many hours we think is appropriate.” — How much of our work is that?? I think a significantly diminishing number. And, so when it comes to the (LPM) Legal Project Management stuff, I see it applying across a very broad spectrum. Because if we’re in, even if you might call it a ‘soft-cap’, and we have a budget and the client has an expectation on it, we have to manage to that number. We can’t go back and say “Oh, whoops! This was twice as much as we thought it was going to be.” The client’s not going to pay that bill. So, Legal Project Management is becoming important in a very broad sense to say “Budgets with Consequences: How do we live by those?”

SA: It is tempting for me to finish this interview by saying “It is really difficult to sell Legal Project Management to law firms, attorneys and lawyers.” But, I’m actually going to flip it around and say it is probably difficult to also get your clients to really, truly understand what it means. Because it’s a two-way street.
TB: Agreed.
SA: What do you do about that?
TB: I think that, just like Alternative Fees, you need to have a conversation with the client about that. Because clients are saying “I want efficiency.” Great. What does that mean? Does it mean fewer hours? Does it mean more technology? Does it mean Project Management? So, I don’t think you do Project Management in a vacuum and then you go back to the client and go “Look, I’ve solved all your problems!” Because that won’t go over well. You need to have the conversation with the client. So, I think that the same concept, AFA to LPM, it’s knowing what your client is really trying to get to.

SA: Toby, thank you so much.
TB: Thank you for having me.