Discussion on Alternative Fee Agreements Alternative to Billing by the Hour

By Collin C. McKean, YLS Futures Committee Co-Chair

How are legal services being priced today - and how will they be priced in the future? On April 28, the YLS Futures Committee invited a diverse group of practitioners to discuss how they price their legal services and how they've made those decisions. The topic of the panel discussion, Alternative Fee Agreements (AFAs), begs the question: "alternative to what?" Billing by the hour is probably the most common, expected and basic method of pricing legal services. However, alternatives to billing by the hour are increasingly being considered by some legal professionals and consumers of legal services for a variety of reasons, including the inherent tensions between achieving billable hour goals and achieving affordable and appropriate representation for clients.

Our panel included Sally Fraser (Standard Insurance), Edward Simpson (Samuels Yoelin Kantor), Jason Hirshon (Slinde and Nelson), Shiela Fox Morrison (Davis Wright Tremaine), and Jonah Paisner (Solo). Aaron Bals (Harrang Long Gary Rudnick), a member of the YLS Futures Committee, moderated the discussion, asking panelists when and why they use AFAs in their practices, if there are situations when AFAs do not work well, how they price their services and in what practice areas they have found the best success with implementation of AFAs.

The topic of AFAs seems to be en vogue in legal industry magazine and blogs - and with some clients. The panelists provided explanations from their personal experiences, such as the ability of legal consumers to transfer outcome risk, the increased ability to predict legal expenses for consumers and marketing opportunities for attorneys who use AFAs. These benefits have led members of our panel and other Oregon attorneys to explore decoupling from the comfort of the billable hour in certain legal matters. The current economy is no small factor in this trend, because a common reason for negotiating an AFA is to reduce the risk of unplanned for legal expenses. By incorporating success fees, risk collars, regressive hourly fees, etc. into the pricing of services, consumers of legal services are increasing the predictability of legal fees while transferring a portion of the risk to the attorney. Some attorneys, in turn, are finding opportunities to increase their profitability under these agreements by increasing efficiencies in the way they practice, and by obtaining beneficial and quick resolutions to their client's legal disputes. In other words, these attorneys are working with "skin in the game," because if they are inefficient they may end up working for lower per-hour fees.

Although it is far from clear that the billable hour's dominance is in danger, changes to the billable system could cause growing pains for some firms. One obstacle to implementation of AFAs in some existing firm structures is the way firms evaluate and compensate attorneys, which is usually based on their hourly contributions. Firms may struggle to find new means to assess and measure successful performance by attorneys, particularly newer associates.

If you did not attend the panel discussion, you may access the discussion (and receive MCLE credit) by visiting www.mbabar.org//YLS/FuturesCommittee.html and viewing a video recording of the discussion, along with sample fee agreements that panel members generously shared. All viewers may claim one hour credit of general practice skills MCLE.