Alternative Fee Arrangements
Johnson & Vines is committed to an aggressive alternative fee arrangement (AFA) program and looks for opportunities to engage in AFAs as a means to provide predictable costs to our clients, reduce billing complexities and align the cost and value of our legal services. As part of our commitment to the use of AFAs, we seek to develop a variety of creative billing arrangements with our clients. Although our experience is that some matters are more suitable for AFAs than others, we are willing to consider alternative billing methodologies for most matters.
By definition, AFAs achieve cost savings for the client and the firm, but for the savings to be effective, the specifications regarding the work to be done need to be clear. These arrangements, detailed below, may be for the life of the matter, for a phase of a particular matter or monthly based on an annual fixed amount:
Under a fixed-fee arrangement, the client pays an agreed-upon sum of money for an agreed-upon amount of work and the firm assumes the risk of overruns. If the hours billed to the engagement are less than expected, the firm benefits. Shared savings can be negotiated into the flat fee arrangement. Retainers are similar to fixed fees, except the firm receives the money upfront.
In a phased-fee arrangement, the law firm and the client agree upon the fees for discrete phases of the work. This type of arrangement works well for Litigation and Transactional matters with defined segments that can be estimated and scope of work well delineated.
An agreed-upon fee is established with a collar, typically 10%. Should the value of fees be above or below the collar, the law firm and client agree on a percentage of the overage/underage to be credited or paid. The percentage is normally 50%. The purpose of this type of deal is to limit risk to both the client and the law firm.
The law firm might be paid a fraction of its fee under an hourly arrangement, and an additional amount if the result exceeds the agreed-upon criteria. The additional amount might be an agreed-upon sum or percentage of the recovery. The law firm and client share the upside of a favorable outcome. The law firm is also negatively affected by an unfavorable outcome, but does not assume the entire risk.
Under a holdback fee arrangement, the client withholds an agreed-upon amount or percentage of the fee until an agreed-upon milestone or result is achieved, or until completion of the engagement.
A blended rate is an agreed-upon hourly rate that applies to all lawyers working on a matter. It can be effective for highly leveraged engagements where less-expensive lawyers can be utilized.
Under a contingent fee arrangement, the law firm gets paid only if it achieves a financial recovery or other result for the client, typically, a percentage of the total recovery. When a contingency fee is utilized, the law firm assumes the risk of a cost overrun and also of a bad outcome.