Six boundary conditions for alternative fee arrangements (AFAs)

At the recent SuperConference, several panels talked about alternatives to hourly billing. I strongly favor them, but there are some limitations on their applicability. Think of them as boundary conditions, and consider these half dozen.

 Small law departments with modest expenditures on outside counsel have little room to maneuver with AFAs.

 Lack of experience by the inside lawyer on a novel type of matter. For your first Hart-Scott-Rodino filing, you can’t comfortably agree to a fixed fee.

 A department’s matters that might potentially be covered by an AFA might be all over the lot. A portfolio of similar matters over time helps induce law firms to agree to an AFA; a hodgepodge of matters makes it difficult.

 Certain types of matters have spikier, less predictable spend, such as class actions and major acquisitions.

 Matters with an attenuated connection between the efforts of even the finest lawyer and the outcome of the matter make AFAs less attractive. AFAs flourish best when the results are likely to fall within a relatively narrow and understood range.

 Transaction costs and ROI constrain the advisability of AFAs. If the game is not worth the candle, don’t play.