Get ready for alternative fee arrangements

Clients and outside counsel are increasingly discussing alternative fee arrangements (AFAs) such as contingency fees, flat and fixed fees and banked fees. For clients, the appeal is relatively simple.

Elizabeth R. Pearce of American International Group (AIG) noted that her company’s difficulties during the great recession was a primary driver.

“[The new CEO] wanted to pay back the Federal government and streamline our businesses, and that was going to include the legal group,” she explained. “We had to cut expenses.”

Though cost cutting is often a primary driver for AFAs, other considerations are also at play. Issues such as cost predictability, lowering administrative burdens, risk sharing and pushing for early resolution are also important factors.

“You need to talk to your clients and understand why they’re looking at AFAs because that will help you structure it,” explained Sarah Lockner, Senior Trademark Counsel at 3M. “What I’m looking for may be very different from what my litigation colleagues are looking for.”