Michael Rynowecer of BTI Consulting had a great, must-read post today on his Mad Clientist blog. In the post, which I strongly recommend, Michael makes these points:

  • Spending on AFAs is way up—nearly 20% CAGR over 4 years
  • Outside counsel spend under AFAs jumped to over 35%
  • Almost 70% of companies
  • The reported savings from AFAs are 13.9%
  • The savings from AFAs add $2.7 million to the average client’s legal budget.
  • The AFA-of-choice, by a wide margin, is the fixed fee.

I get a picture of Samuel L. Jackson staring out from the TV saying “What’s in your wallet?”  Except he is saying “Why aren’t you using more AFAs?”

I have two points to add to those made in Michael’s post.  First, what has taken so long?  Just kidding, the last 8 years since we launched Valorem and became “the alternative fee firm” have flown by.  Ok, mostly flown by.  But it is gratifying to know the market is moving decisively to where we thought it should be when we started.

Second, there is room for so much more savings.  AFAs are not the end game for delivering value.  They are but one of a serious of tools that combine to deliver the greatest value.  Think about a Swiss Army knife.  If you just use the short blade and none of the other tools, you are not getting the most value from it.  As clients focus on these other tools, some firms will do so too, or at least say they do.  Which leads to the second reason there is significant room for more savings: Most AFAs are still calculated based on estimate hours x hourly rates, so the AFA is really a wolf in sheep’s clothing, or as a friend from Australia prefers, hourly billing in drag.  If firms are not radically reducing their cost structure, basing fees on cost of production rather than the amount they would earn if billing hourly, they are not doing the things that create real savings for clients.

What firms say and what they do remain very different things, and clients must insist that firms do the things that create savings.  Or vote with their wallet.