Issue link: https://epubs.iltanet.org/i/30285
discreet tasks within a matter. A variation on fixed fees includes the use of a “collar” around the fee. This collar is a percentage over and under the fee amount. Time is actually recorded against the matter and if the resulting time-based fee total comes within the collar, the fixed fee is paid. If that amount is over the collar, work above the collar is paid at a deep discount off of hourly rates. If the amount is under, a percentage of the savings is shared. • Fee Caps: A cap is the maximum amount that will be paid regardless of the amount of work done. This is usually calculated by using hours and rates. • Discount/Bonus Fees: This fee has the greatest variation, but the basic idea is that a discount (against hourly or fixed fees) is given if goals are not met. When goals are met or exceeded a bonus may be given. Variations include not having bonus levels above the agreed upon fee, or not having discounts below it. • Contingency Fees: All fees are contingent on success in a matter, such as a defined victory in a dispute, or the closing of a deal. Current market surveys estimate that the percentage of billings under AFAs for Am Law firms is around 16 percent. Historically this number has been around five percent. These numbers are not easily available and therefore suspect, but, based on my experience, a tripling of AFAs is a probable number. I suspect usage is actually higher, since most firms do not have centralized AFA approval and tracking processes and therefore do not have an accurate record of how many AFA engagements they actually have. Also, a lot of clients request AFAs, but then opt for discounted hourly rates in the end. determining the profitability of the AFA” “Leverage is a key factor in THE SECRET TO SUCCESSFUL AFAS The most common queries I receive about AFAs are: Which one should we use, and how much should the fee be? Everyone is looking for the right type of AFA to use and the appropriate fee for a given type of matter. The answer is…there isn’t one solution. Of the more than 500 AFAs I have created, reviewed, analyzed and pitched, it is unlikely any two were identical (except maybe those that renewed for follow-on years). Even for like matters with the same client, I have seen different AFAs utilized. The real secret to implementing successful AFAs is talking with and listening to clients about their fee needs and concerns. When a client speaks about cash flow as an issue, fee predictability on a monthly basis may be the primary need. Other clients might need certainty of the total matter fee. Recently I heard one client say that being on or under budget on legal fees heavily impacted their personal annual performance reviews. These are just some examples of the kinds of client needs that can drive AFA decisions. www.iltanet.org Financial Management 31