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Building Alternative Fee Arrangements? Here's Some Key Considerations

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With an eye towards budget predictability and managing risk, many in-house legal departments are looking to implement alternative fee arrangements (AFAs) with outside counsel as an element of legal spend management.

There was a time when any arrangement outside straight billable hours was unheard-of, today a greater number of law firms are now open to AFAs – in fact, they have no choice. The issue, therefore, has become one of structuring the best fee arrangements – one that both parties agree to, aligns with the goals and financial requirements of each, and is based upon accurate historical data to give the legal department confidence that the arrangement is intelligent and appropriate.

Initial considerations

There are numerous types of AFAs being utilised these days, but before deciding which might be most suitable given the individual circumstances of parties in question, it is wise for law firms and legal departments alike to consider the engagement in terms of true value to their respective organisations and the desired outcome. Is it a “win at all costs” matter or something much less critical in the big picture? Is compromise an option? Is any future relationship with the opposing party involved a non-issue, or does it involve an entity with whom either organisation to continue to conduct business with for many years to come?

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