AFAs Have Arrived: Is Your Law Firm Ready?
Last month I participated in an AboveTheLaw panel discussion that addressed the question, “Should law firms still use the billable hour in 2017?” During that conversation, I urged firms to work on new pricing strategies but answered "yes" to still using billable hours because, in my opinion, "most firms (and clients) aren't where they need to be to make a sweeping change to alternative fees only."
A few weeks later, Microsoft announced its Strategic Partner program for outside counsel. One highlight of this initiative: Microsoft hopes to move 90% of its legal work to alternative fee arrangements (AFAs) within the next two years (to find out more, check out the LinkedIn post by Microsoft's Deputy General Counsel, David Howard, here and a Corporate Counsel article on the Microsoft program here).
The Microsoft Strategic Partner announcement has generated firestorm of press on alternative fees, including an article by Miriam Rozen on the Microsoft firms' "jittery" response. It also has shined a spotlight on GlaxoSmithKlein, another Fortune 500 company that has taken huge strides towards moving off the billable hour. See http://www.law.com/sites/almstaff/2017/08/10/how-pharma-giant-gsk-got-tough-on-fixed-fees/. GSK's groundbreaking work on AFAs has been documented in an excellent Harvard Business Review case study by Heidi K. Gardner and Silva Hodges Silverstein.
The Microsoft and GSK initiatives are powerful examples of big companies and top-tier law firms that are figuring out how to make AFAs work, even in complex cases. Their programs send a strong signal that it can be done, and - in the case of Microsoft - it appears that thirteen mega-firms have very publicly agreed to try. Whatever your stance on hourly billing, this is a big deal and could have a significant ripple-effect in the industry.
In light of these recent events, I would like to modify my answer to the question posed to the AboveTheLaw panel back in July. While I stand behind the bulk of that response, I would add the following advice to my lawyer colleagues: If you aren't actively working on ways to improve efficiency and structure profitable, competitive alternative fee arrangements, START. RIGHT. NOW!
Digitory Legal has built these considerations and more into its easy-to-use litigation budgeting tool. Our detailed reports, average costs-per-task, and easily updated framework is the perfect solution for clients who are tired of hearing “but it’s litigation...“
Catherine Krow is the founder and CEO of Digitory Legal. She is an experienced general litigator and trial lawyer and was a Partner in the San Francisco office of Orrick, Herrington & Sutcliffe from 2007-2014.