This month’s Money Issue features Canadian Lawyer’s annual Legal Fees Survey, in which the majority of respondents said they weren’t going to raise the fees charged to clients this year. While the survey focuses on the most common consumer-focused legal services, generally provided by smaller firms and sole practitioners, their response to clients mirrors what’s happening across the board.
In response to clients’ desire for more reasonable fees, they’re jumping on the alternative fee arrangement bandwagon — ostensibly to make clients happy. But what exactly are AFAs? There’s no real definition and so it could mean anything from set fees for commodity to work, to blended rates, discounts, contingency fees, capped fees, partial contingency fees . . . anything that is not 100 per cent based on hourly rates.
Talk of AFAs is widespread, but is their adoption? A report released last month by ALM Legal Intelligence in the U.S. showed more corporate clients were using AFAs in 2012 to determine how to pay outside counsel. The survey found that 19 per cent of corporate legal departments used AFAs for more than half of their legal work, a 12-per-cent increase over 2011, and 51 per cent said the volume of AFAs increased in 2012.
But looking at the AFA phenom from the law firm side, the numbers are quite different. The ALM survey found just three per cent of law firms used AFAs for more than half their work, down from six per cent last year, and only three percent of law firms said they initiated the majority of their AFAs with clients, down from 13 per cent last year.
In Canada, however, AFAs, while offered by many firms, are not hitting the spot with in-house counsel here, according to the 2013 In-House Counsel Barometer Survey from the Canadian Corporate Counsel Association and Davies Ward Phillips & Vineberg LLP. “There is a general lack of knowledge surrounding alternative fee arrangements,” admits former CCCA chairman Geoffrey Creighton in our cover story. “It might work in certain contexts but in others I don’t know how you’d make an alternative fee arrangement work really well if it is a big complicated transaction. I still think the traditional billable hour is appropriate for many more complex matters if you have a good trusting relationship.”
I say AFAs or value billing are at the heart of change and everyone needs to become more comfortable with moving away from the traditional hourly rate. As Peter Gutelius, an assistant general counsel with RBC, says in the current issue of Canadian Lawyer InHouse: “It depends what title you want to put on it — alternative arrangements or value billing — we have done it and believe it can be applied to any legal retainer.”
Simply playing the heavy discount game can lead to bittersweet results as McCarthy Tétrault LLP partner Matthew Peters warns in the cover story. “We have seen this in circumstances with other firms where they are loading up,” he says. “There is no barrier to scraping up hours. Their view is that it’s such a low rate we better rack up the hours in order to increase the top-line revenues.” As importantly, he adds, hefty discounts don’t address the real issues and can lead to a host of other problems. “This is a whole issue of efficiency and how services are delivered. If you can examine the number of hours, the staffing profiles, and just how services are delivered, you can actually impact the total bill as well.”
That means changes to the internal functions of law firms, some might even call it a revolution: legal project management and legal process mapping. Getting a grip on how each part of every file works and progresses is the only way to refine service delivery and create efficiencies — and thus serve clients better. That’s the way forward, not just a whole lot of lawyers working a lot of hours and charging the clients a lot less.