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Alternative Fee Arrangements: Pros, Cons and Ethical Considerations

Alternative Fee Arrangements (AFAs) are regaining traction in the legal industry, shifting away from traditional billable hour models. This guide delves into the pros and cons of AFAs, highlighting ethical concerns inherent in fee deals. It discusses the importance of aligning firm and client interests, valuing client-defined outcomes, and maintaining trust. By exploring various AFA options such as contingency fees, blended rates, and flat fees, lawyers can create suitable arrangements that prioritize client needs while addressing tension between legal representation and economic interests.

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Alternative Fee Arrangements: Pros, Cons and Ethical Considerations

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  1. Alternative Fee Arrangements: Pros, Cons and Ethical Considerations Jean L. Bertrand

  2. Last in vogue in 1990’s • For some of us, never went “out” AFA’s are “in” again

  3. G.C. survey: 24% use billable hour model only • Companies with revenues > $1B: only 12% use billable hour model only • AFA discussions initiated by law firms: 3% Some Statistics

  4. Perils and Pitfalls: Ethical Concerns

  5. Conflict in Every Fee Deal There is an inherent conflict in every fee deal • If you win  the client was right all along so why should they have to pay lawyers? • If you lose  you messed up and you charged too much.

  6. Solution • Give value to the client as defined by the client • Let the client set the level of risk it is willing to take • Build on a relationship based on trust • Incorporate escape clauses for both client and firm • Align the interests of firm and client

  7. Selecting an AFA Match the AFA to the client’s driving need • If the client’s biggest concern is the end result  contingency fee • If cost is the driver  blended fee • If predictability is key  flat fee • If the client cares most about access to top legal talent  retainer/bonus structure

  8. Selected Ethical Considerations

  9. Our duty to zealously represent our clients  Tension with firm’s economic interests • Fixed fees • Capped fees • Blended rate deals  A different tension if flat fee is too low

  10. Solutions • Disclosure, discussion, write it down • Motivate lawyers and legal assistants • Reward results

  11. Our duty not to impair the client’s absolute right to fire us  Tension with firm’s economic interests • Contingency fees • Bonus deals • Other back-loaded arrangements

  12. Solutions • Disclosure, discussion, write it down • Motivate lawyers et al. • Use a guaranteed reduced hourly-rate set-off against contingency fee recovery • Be aware of special rules applicable here

  13. Our fees must be reasonable • Tension with firm’s economic interests • contingency fees • fixed fees • partner-only deals • bonus deals • Reasonableness will be evaluated at the beginning • And at the end

  14. Solutions • Disclosure, discussion, write it down • Motivate lawyers et al. • Quantum meruit conversion clause • Escape clause • Make bonus discretionary

  15. Hourly billing raises ethical issues too • Reasonable fees duty • Obligation to be efficient

  16. Ethical rules govern the way we handle the client’s money Tension with • flat fees • bonus deals

  17. Solutions • Disclosure, discussion, write it down • Agree in advance on “milestones” • Use Trust account

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