If it seems like everywhere you go these days someone is talking about alternative fee arrangements, you’re not alone. It’s been a popular topic at legal conferences and workshops for a few years now, but have they really taken off? And what exactly is an AFA — do flat fees or discounts count?
David Felicissimo is one general counsel who wonders that a lot. Last year, he completed an executive education certificate at Harvard Law School where AFAs were a frequent topic of conversation among his colleagues. As the “only legal officer” in a growing Montreal private investment company, Felicissimo works for an organization that specializes in the acquisition and development of Internet-based businesses — their assets are on the web and their audience is worldwide. His very new-economy company still does a lot of work with external counsel based on the old billable hour.
“It’s a topic we talk about often when I speak to other general counsel,” says Felicissimo, general counsel at Valnet Inc. “At Valnet, we’re still using the billable hour with our primary firm in Canada — we have a great relationship with them and we’ve been working with them for eight years.”
In fact, 46.8% of respondents to the annual Canadian Lawyer Corporate Counsel Survey said the billable hour is still the main arrangement they have with their primary law firm, followed by a combination of billable hours and flat fees at 31%. “I thought I was missing the boat on AFAs, but I see it’s one of those things that is discussed all the time but has not really caught on yet in a big way — I have a feeling it probably has more with the bigger firms and with their bigger clients,” he says.
This year, 218 law department leaders from Canadian corporations and government participated in the Corporate Counsel Survey. On the question of what arrangements they use in addition to the billable hour, respondents indicated they use AFAs (12.7%), flat fees (1.9%), and requests for proposals (1.3%), as well as “other” (6.3%) options. Many said they were using a combination of billable hours, request for proposals (RFPs), and flat fee arrangements.
Felicissimo is part of the majority of survey respondents who work in legal departments with less than five lawyers — 56.4% — and perhaps carry a little less budget muscle than, say, the big five banks, which have been the primary drivers of AFAs including value billing.
Of the 12.7% of in-house who said they do use AFAs, 66% said 25% or less of the work they send out falls under an alternative arrangement, while 16% said between 50% and 75% is compensated based on an AFA. Fixed fees for consistent types of work were the most popular AFA with 62% of respondents indicating it was the method they used most, followed at 58% by flat fees for a prescribed phase of work or bundled portfolio of work.