Issue link: https://epubs.iltanet.org/i/30285
These varying needs and fee concerns have resulted in the application of a variety of AFA types, which means that the knowledge base and systems used to determine and track fees must be deep and flexible. AFA IMPLEMENTATION PROCESS Understand Client Needs As noted above, the best first step in the process is talking with the client. The information gained in these conversations will prove quite useful throughout the AFA steps defined below. Establish Budget and Expected Leverage A basic requirement in implementing almost any AFA is creating some level of a budget, be it a very simple one, or one with a high degree of detail. The more detailed budget variations are essentially matter plans, which provide a basis for managing the matter against an AFA fee. Simple budgets may be just the total amount of a fee, but should also include an expected leverage for the work — leverage being the ratio of non-partner hours to partner hours spent on the matter. Leverage is a key factor in determining the profitability of the AFA. Too often, at this stage in the evolution of AFAs, not enough thought is given to scope of work. It is not a good idea to take work on a fixed fee without some understanding of the work that will be done. There appear to be efforts emerging to define out- of-scope activities. This can take the form of a list of assumptions or events that trigger a re-negotiation of the AFA. Maintain Profitability Once the budget and leverage is established, it is possible to predict the profitability of the AFA. 32 Financial Management ILTA White Paper Perhaps more importantly, different variations on the AFA can be explored to see how profitability might be improved. I think this is a critical step for successful AFAs. Lawyers tend to think solely in terms of hours and revenue, and assume whatever approach they take will generate positive financial results. Secure Law Firm and Client Approval With a defined AFA in hand, depending on a firm’s policies, it is important to have this AFA approved by the firm’s leadership. Some firms may include this approval step earlier in the process, or approval authority may exist at the individual partner level. However it is accomplished, the fee deal must be well-defined, and partners and leadership must have a good understanding of its potential profitability. The approved version of the AFA should be logged in the appropriate system. Entering the parameters of the AFA into a system will allow monitoring of the actual-to-budget performance. Of course, at some point the AFA needs to be shared with the client. The best practice is to do this in person. Emailing these is not recommended, since too many nuances of an arrangement are lost and the client sees only the number. Another best practice here is to leave room for negotiation. Lawyers are generally surprised when clients don’t accept the first offer. Clients may have accepted the first one in the past, when budgets were not so concrete, but now most expect to see some give-and-take in the negotiating process. Monitor Work Against Your Budget Once a firm secures an AFA engagement, another best practice is to monitor the actual work put into the matter against the predicted budget. Most budgets