HOW TO GET THE BEST LEGAL SERVICES By Nancey Watson
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he goal of this article is to explain how alternative fee arrangements (AFAs) can be of benefit to legal departments, and give an overview of the main types that are used. A discounted fee is not an alternative fee arrangement. According to the American Bar Association, “AFAs are not about charging more than what an hourly rate might be — they are about charging an appropriate fee, based on what value the client receives and how that client perceives value. Alternative billing should be based on what is fair and reasonable to both the client and the lawyer. Keeping track of time should be the lawyer’s measure of cost, not necessarily a measure of the value he or she is providing the clients in their legal needs.” Put another way, “Price is what you pay; value is what you get.” —Warren Buffett I interviewed Stuart Dodds, Director of Global Pricing and Legal Project Management at Baker McKenzie a while ago about AFAs and pricing. He confirmed that “the most common approach within the legal sector when determining the price of a matter is to build it from the bottom up, i.e., using a cost-based approach. Although this accurately reflects the costs incurred by the law firm themselves, this is often of little interest to in-house attorneys as they are more focused on the fee and the eventual outcome.” Market-based pricing is occurring more frequently within the legal sector, but we all know that there is no guarantee that the matters being priced are comparable. Market pricing is pricing a matter for X dollars. An example of this would be contract drafting. Some contracts are based on a template; charging for the time it would take to complete it would not be profitable, so the lawyer would charge a fixed fee for the contract. A true AFA is based on aligned goals, including risk sharing. Value-based pricing is building strong momentum within the legal community. The objective is to build a close relationship by encouraging risk/reward-sharing incentives and developing value-based compensation models that reflect the value of the