Using Billing Guidelines to Explore AFAs
This is the third in a series of posts based on our whitepaper “Legal Billing Guidelines in the Age of AI.” In this post, we explore the benefits of including a discussion of AFAs in your legal billing guidelines.
The traditional billable hour model isn't always the best fit for predictable costs or aligning legal fees with the value delivered. Alternative Fee Arrangements (AFAs) offer powerful ways to achieve better cost management and strategic alignment with your outside counsel. But how do you identify opportunities for AFAs and then move beyond discussion to adoption? Your billing guidelines are the perfect place to start.
Instead of solely focusing on hourly rates, use your guidelines to proactively signal your openness to AFAs and outline the types you're interested in exploring. This sets the stage for collaborative discussions about value and predictability.
Consider including language in your guidelines about these common AFA structures:
Fixed Fees: Ideal for predictable projects with a well-defined scope, like standardized contracts or routine filings.
Capped Fees: Useful when the scope is mostly defined but has some uncertainty. Provides budget certainty while allowing hourly billing up to a limit.
Success/Performance Incentives: Best for matters where outcomes significantly impact business goals (e.g., litigation, major deals), motivating counsel towards specific results.
Blended Rates: Simplifies billing when various team members handle similar matters, averaging rates across seniority levels or different matters.
Retainers: Suitable for ongoing, predictable legal needs like general advice or routine contract reviews, securing services for a set periodic fee.
By explicitly mentioning AFAs in your billing guidelines, you encourage outside counsel to think beyond hourly billing and proactively identify opportunities where alternative models make sense. If you use AI-powered spend management software, it may also help identify potential opportunities going forward for AFAs, allowing you to flag the discussion for outside counsel.
AFAs can be a key tool in optimizing legal spend, improving budget predictability, and ensuring you're paying for value delivered.
For a comprehensive guide on creating your billing guidelines as well as our sample billing guidelines template, see our Legal Billing Guidelines in the Age of AI.