WilmerHale is committed to an aggressive alternative fee arrangement (AFA) program and has encouraged our partners to find opportunities to engage in AFAs as a means to provide predictable costs to our clients, reduce billing complexities and align the cost and value of our legal services. As part of this commitment, we have instituted a Matter Management Program for partners to meet clients’ expectations of efficiency, predictability and value. The program stresses four key elements of effective matter management: communication and client relationship; legal strategy; planning and monitoring timelines, tasks and budgets; and delegating and motivating the legal team.
As part of our commitment to the use of AFAs, we have developed a variety of creative billing arrangements with our clients. Although our experience is that some matters are more suitable for AFAs than others, we are willing to consider alternative billing methodologies for most matters. By definition, AFAs achieve cost savings for the client and the firm, but for the savings to be effective, the specifications regarding the work to be done need to be clear.
We currently have AFAs in place in our Regulatory, Intellectual Property, Transactional (Corporate, Real Estate and Labor and Employment Practice Groups) and Litigation Departments. These arrangements, detailed below, may be for the life of the matter, for a phase of a particular matter or monthly based on an annual fixed amount:
Fixed Fee: Under a fixed-fee arrangement, the client pays an agreed-upon sum of money for an agreed-upon amount of work and the firm assumes the risk of overruns. If the hours billed to the engagement are less than expected, the firm benefits. Shared savings can be negotiated into the flat fee arrangement. Retainers are similar to fixed fees, except the firm receives the money upfront.
Phased Fee: In a phased-fee arrangement, the law firm and the client agree upon the fees for discrete phases of the work. This type of arrangement works well for Litigation and Transactional matters with defined segments that can be estimated and scope of work well delineated.
Collared Fee: An agreed-upon fee is established with a collar, typically 10%. Should the value of fees be above or below the collar, the law firm and client agree on a percentage of the overage/underage to be credited or paid. The percentage is normally 50%. The purpose of this type of deal is to limit risk to both the client and the law firm.
Value Fee: The law firm might be paid a fraction of its fee under an hourly arrangement, and an additional amount if the result exceeds the agreed-upon criteria. The additional amount might be an agreed-upon sum or percentage of the recovery. The law firm and client share the upside of a favorable outcome. The law firm is also negatively affected by an unfavorable outcome, but does not assume the entire risk.
Holdback: Under a holdback fee arrangement, the client withholds an agreed-upon amount or percentage of the fee until an agreed-upon milestone or result is achieved, or until completion of the engagement.
Blended Rate: A blended rate is an agreed-upon hourly rate that applies to all lawyers working on a matter. It can be effective for highly leveraged engagements where less-expensive lawyers can be utilized.
Contingent Fee: Under a contingent fee arrangement, the law firm gets paid only if it achieves a financial recovery or other result for the client, typically, a percentage of the total recovery. When a contingency fee is utilized, the law firm assumes the risk of a cost overrun and also of a bad outcome.
WilmerHale is an industry leader in efforts to transform the traditional business model for large firms, and we are working aggressively to modify many of its pillars, including the partner-associate structure, attorney compensation and the billable hour. We truly believe AFAs are the wave of the future and we are willing to work with our clients to craft such arrangements as appropriate.
For more details on the process of setting alternative fees for legal services; reducing costs and rewarding results; managing projects; and calculating budgets and compensation, read “Getting Your Fix,” an article co-authored by Partner Bill Lee and Senior Counsel and former Senior Vice President-General Counsel for General Electric Ben Heineman, which was originally published in Corporate Counsel. For more information on WilmerHale’s Matter Management Program or AFAs, contact Director, Complex Client Services Joanne Ekhaml at +1 617 526 5308.