The next part of my series on “Better Decisions with Business Intelligence and Competitive Intelligence” will be about using BI and CI when pricing legal services. (Part One is here.) As I draft that post it occurs to me that we need some more common vocabulary, specifically around Alternative Fee Arrangements (AFAs). We’ve been kicking this term around for several years now, but I rarely meet two people who have exactly the same things in mind when they talk about AFAs.

To each their own, but here are the forms of AFA with which I have worked and how I think of each:

Blended Rate

Billing all attorneys and every attorney class (partner, associate, of counsel) at the same hourly rate

Contingency Fees

Traditional straight contingency for plaintiff cases

“Reverse” contingency for defense cases

Often gradated based on phase of the matter

Percentages increase as case nears trial

Discounted Hourly Rates

Rate structure unchanged from last year

Additional standard percent discounts as warranted

Fee Holdbacks

Firm holds back agreed upon percentage from monthly billings

Firm can earn full holdback based on client satisfaction

Fixed, Flat or Capped Fees

Based upon anticipated fees using standard billing rates

For individual matters or an entire portfolio of matters

For the life of a matter or for a determined length of time

For matters about which the scope is well understood beforehand

“Frequent-Flyer” Credits

Significant fee reductions for one matter in exchange for commitment to receive others (sometimes in other practices)

Credit against future billings

Monthly Retainer

Includes simple, no- or low-research questions

Equivalent of a “walk down the hall” to consult with a colleague

Phased-Based Fees

Estimated specific fees for each phase

Motion to dismiss

Discovery

Dispositive motions

Trial preparation

Trial

Pre-Set Budget with Collar

Anticipates matters where effort can vary from initial estimate

Client and firm share upside and downside equally, e.g.,

If 80% of estimate, firm bills 90%

If 120% of estimate (not due to scope changes), firm bills 110%

Success Fees

A premium, in addition to prior billings, paid according to the client’s evaluation of firm’s performance

Mutually developed schedule or percentage of billings

Can promote early resolutions of litigations

Volume Discounts

Discounts increase with volume

Based on standard hourly rates

Hybrid Success/Phase-Based Arrangements

Blend of flat and discounted fees for various phases based on outcomes

Litigation Phase                Pricing Plan                         If Matter is Disposed

Early discovery                 $___ fixed fee                   $___ fixed fee

Discovery                         ___% of hourly rate            ___% of hourly rate

Mediation                         ___% of hourly rate            ___% of hourly rate

Pre-trial prep                     ___% of hourly rate            ___% of hourly rate

Trial                                  Per diem fee                     Outcome-based bonus