A cluster of ways of thinking needs to mesh for a law department to have confidence that a law firm will perform well under an alternative fee arrangement. Six come to mind
Data mining – to set the matter or phase fees reasonably accurately based on analyzed historical data from both the department and the firm (See my post of May 6, 2009: data mining by law departments and law firms with 10 references.).
Portfolio risk dispersion – to understand and accept that in a well-done AFA both firm and department quite often “lose out”: a windfall to one is a premium to the other (See my post of Nov. 6, 2005: flat fees at Wal-Mart; April 27, 2006: economic concept of beta; July 4, 2006: insurance coverage for a portfolio of matters on fixed fees; Dec. 3, 2006: large firms can take on large blocks of work; March 6, 2007: thoughts on portfolios in law department management; June 14, 2009 #4: portfolio theory and a few applications; and June 1, 2010: boundary conditions of AFAs.).
Transaction cost economics – to appreciate through experience how complicated and costly is it to negotiate the terms of some arrangements (See my post of Nov. 19, 2009: Coasian analysis with 6 references.).
Game theory – to draw on the learning from research into the strategic “moves” available to departments and firms that work together over time (See my post of March 16, 2008: game theory with 6 references.).
Project management – to direct the right people to do the right work at the right time (See my post of June 24, 2007: project management with 5 references; and Sept. 22, 2009: project management with 13 references and 1 metapost.).
Offshore providers – to draw upon appropriate resources outside the lead law firm (See my post of June 2, 2010: four metaposts and 15 more posts on offshore resources.).