As part of our new foray into consulting, Pat Lamb and I have had the chance to help guide several small and mid-sized law firms interested in moving towards alternative fee arrangements but unsure where to begin. Having practiced using alternative fee arrangements almost exclusively since we started Valorem Law nine years ago, we forget that there are thousands of lawyers who have never used any fee arrangement aside from the billable hour for their entire career. While they are genuinely interested in making a change, in most cases it is not because they inherently know of and understand the limitations of the billable model. More often than not, some external force — a new management regime or more likely, a client, is the driving force behind the interest in change.
As a result, some repetitive patterns emerge. I will discuss three in this post. The first is that firms genuinely believe they are using alternative fees if they are using blended hourly rates or discounts. As a result, they think they have anywhere from a moderate to substantial amount of experience in using AFAs. The first piece of difficult news we typically deliver — they don’t. No arrangement based on the billable hour is an AFA. Fees based on hours are, well, hourly fees. The adjective used (discounted, blended, etc.) doesn’t change the animal.
Second, the question of “why would we ever do this?” invariably crosses somebody’s lips within our first or second session. This is a rational question from people who have been consistently paid, win or lose, without taking any risk by putting any skin in the game. That clients are demanding it, that their competition is perfecting it and that firms employing AFAs and learning to be more efficient are able to be more profitable than before is the answer. But, as expected, skeptics abound. Especially early on.
Third, they want to know the first step. Truthfully though, there are really two first steps that run parallel to one another. One is committing to the cultural mind shift needed to make AFAs work. The second is to start small. In other words, while the firm undergoes the necessary steps to shift the mindset from one that operates under the billable hour model, we recommend that a small group works with us to go thru the process of shifting a subset of their matters to AFAs — maybe plans for estates under $2 million or single plaintiff employment cases–under our guidance. That way, those who see how to ease into the shift to a new fee arrangement can become the leaders and trainers for the second wave. And so on. This also allows us to identify any firm-specific issues that may not be readily apparent before implementing AFAs throughout the firm or even a department.
These are just three common issues that have come up in our short stint of consulting on AFAs. We will identify more issues in future posts. As they say, the road to change starts with the first step. We applaud these firms for their willingness to start the journey and the wisdom to do so in a way that helps them repeating avoidable mistakes along the way.