Does Your Firm Really Believe in Fee Alternatives?
While more law firms than ever say they understand the importance of alternative fee arrangements, the 2013 Altman Weil Law Firms in Transition survey of leaders at nearly 800 US law firm with 50 or more lawyers suggests that this is mere lip service:
Eight out of ten firm leaders believe "more non-hourly billing" is here to stay. However, only 29 percent of firm leaders said their firms have significantly changed their strategic approach to pricing since the recession - and that was mainly to offer discounts. Billing based on metrics other than hourly rates represents only 10 percent of fees collected at surveyed firms, and two-thirds of all AFAs were provided in response to client requests, compared to only about one third offered proactively by the firms.
Why are firms so reluctant to take the lead on AFA billing, when clients have so clearly expressed their dislike for traditional hourly rates? Certainly there is no ethical barrier whatsoever to using AFAs. Rule of Professional Conduct 1.5 states that lawyers cannot charge an "unreasonable" fee. AFAs meet this concern because, rather than setting price by a standard unit or result, they focus on actions taken to benefit the client.
The real AFA reluctance likely involves the potential for conflict. If lawyers use alternatives like value billing or flat/fixed fees, and do not help clients understand why, clients are likely to misunderstand what the lawyer did and how it helped them. Fee controversies are too often the result. In any alternative billing method, the skills of a lawyer and the way in which services are marketed and delivered to the client must coincide with what the client wants and needs to have.
A law firm's commitment to use alternative fees requires three basic requirements for success:
Communication is essential. No firm should fall into the trap of simply changing or cutting its fee structure without a thorough explanation. An up-front general statement about fees and alternatives, estimates and budgets is crucial to secure client acceptance. Clients must be educated. Their understanding of what equitable arrangements may exist is typically not substantial. Law firms must work with clients to develop specific pricing alternatives based on realistic expectations. Alternatives must be flexible. Client preferences and the factors in each matter differ and can require different billing options. Firms should work with clients to measure the value desired and provide AFAs accordingly, so that "value," not "lower price," is the message.
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