In a Altman Weil survey of large and midsize law firms, 95% said they use Alternative Fee Arrangements (AFAs). Two-thirds of these firms report their use of AFAs is primarily reactive in response to client requests.
Why are legal departments aggressively moving toward AFAs? We’re seeing three major reasons continue to pop up:
- To get more predictability and transparency into legal spend
- To build better structure around how they work with outside counsel
- To save costs without sacrificing quality or value of services
The Challenge Faced by Legal Teams that Leverage AFAs
While there are numerous benefits for legal teams that take advantage of AFAs, one challenge is tracking and reporting on legal spend using these alternative fees. Many legacy e-Billing and spend management software have only been reactive in their support for AFAs. They are unable to delineate between flat fees and hourly fees. This makes it impossible for legal to get an accurate depiction of their hourly timekeeper rates because there are flat fees mixed in.
If in-house legal can’t provide reliable reports around a basic metric like hourly timekeeper rates, the power of AFAs in bringing predictability and transparency to legal spend becomes diluted.
Providing Modern Tools to Effectively Manage Legal Spend
The good news is that there are modern legal solutions like SimpleLegal that handle AFAs, and effectively support the needs of today’s corporate legal departments. Our system understands the difference between a fixed fee and an hourly rate, making it possible to separate each into their appropriate bucket. This is important if your team is interested in more granular reporting and a clearer understanding of overall legal spend with outside counsel.
For companies that are patent or litigation heavy, SimpleLegal allows legal teams to set up budgets on specific litigation and patent codes or phases. Additionally, these budgets can be limited with fee caps. When the budget exceeds a certain amount, the legal team is notified so they can intervene as soon as possible.
AFAs are Here to Stay
Referring back to the statistic shared at the beginning of this post, the other one-third (of the 95% of law firms that use AFAs) report their use of AFAs is primarily to gain a competitive advantage. Law firms want to make their clients happy. Bringing more transparency to billing plays a large part in achieving this goal and is something more law firms will be adopting as AFAs continue to be a key request from legal teams.
If you’re a modern legal department looking to gain more transparency into and control over your legal spend, schedule time to see a demo of SimpleLegal. A better way to manage your invoices, matters, budgets, and accruals is just around the corner.