Successful AFAs: How to pick the appropriate fee structure
The hourly rate has long been the pricing of choice for legal work which, at times, can make it difficult for you to forecast and manage your legal spend. However, in the current climate where cost certainty, transparency and value for money are becoming increasingly important to clients, pricing legal work now requires greater emphasis on selecting ‘alternative fee arrangements (AFAs)’.
AFAs allow for more innovative and flexible fee structures to be applied to well defined scopes of work. Whilst the level of risk sharing between the client and the firm varies, having the appropriate fee structure in place for the right project can deliver greater value for money, whilst ensuring lawyers to adapt their delivery of legal services appropriately.
Questions to consider when choosing the right AFA
There is no ‘one-size-fits-all’ when it comes to choosing a fee arrangement. What works on one project may not work on another. To help find the right fit for you, first consider:
- What is the likelihood of failure or success?
- What are the your key drivers (e.g. price or budget certainty)?
- What is your appetite for sharing risk and reward?Are you driven by a deadline to complete?
- Do you have a preferred approach in mind that would lend itself to particular pricing models?
- What service delivery methods can be implemented on the project?
The next step is to clearly communicate these points with us. A well-defined scope of work assists Norton Rose Fulbright in understanding what is required but, if in doubt, speak to us when creating your scope, following up with clarification calls as necessary.
Benefits of AFAs
Despite feeling like a minefield, tailoring your fee arrangement, rather than taking a traditional approach, can yield a number of benefits to both you and Norton Rose Fulbright:
- Win-win: In the right circumstances, a suitable AFA can deliver better commercial outcomes for both parties.
- Incentivise: Having clear, structured fee arrangements incentivises lawyers to innovate the way they do the work and improve efficiency in how matters are carried out.
- Relationship building: Aligning fee arrangements with both parties’ interests improves relationships and better enables both sides to work in partnership.
- Control: Some AFAs enable you to know exactly what you will be expected to pay from the outset. This can prevent any uncertainty when you get your final bill.
Different types of AFAs
Armed with this information, your provider can assess which types of AFAs would be most suitable. We typically split the different types of fee arrangements into three different categories:
| Time based | Cost based | Value based |
|
This is a traditional method of pricing where work carried out is charged by the hour. Example: You may wish to have a dedicated hotline in which your in-house legal team can contact their external lawyer team for advice on a particular legal subject. For ease, a blended hourly rate could be charged regardless of the lawyer rank answering the call. |
A pricing proposal that provides cost certainty for your business based on a pre-agreed scope of work. Example: Your business requires high level monthly updates on COVID and the impact on employment regulations. A monthly fixed fee would be applicable. |
A pricing proposal that is based on outcomes achieved, which aligns with the clients objectives. Example:
Your business may be looking to acquire a comparable company in a different jurisdiction as part of an expansion strategy. |
The above are only a small number of examples in how we can work collaboratively with you to deliver pricing which aligns with your objectives. Norton Rose Fulbright has an experienced pricing team who work closely with clients and internal delivery teams to identify, select and implement the most appropriate fee structure which aims to deliver a win-win outcome for all parties.
Furthermore, we are fortunate to have well-established multi-disciplinary teams who support our stakeholders to utilise the best people, technology and processes along with legal project managers to tailor our commercial offerings to our clients further. Many of these teams sit within NRF Transform, the firm’s change and innovation programme.
If you’d like to know more about the types of fee arrangements that could work for your business please reach out to your usual Norton Rose Fulbright contact.
