AFAs Increase to 16.8% – Could Be Good News for Legal Tech

A new survey of inhouse legal purchasing trends by LexisNexis CounselLink has found that Alternative Fee Arrangements (AFAs) were in place for about 17% of work on average in the last year, up from 12% previously. This matters, as more fixed fees and scoped fees generate more need for legal tech productivity tools.

The challenge as ever with AFAs is that they cover a multitude of fee systems, not just good old fixed fee deals that might cover the due diligence of an M&A deal, for example. They could also include success and contingency fees, phase-based fees, and retainers – and in those cases efficiency gains from legal tech may not always be seen as a benefit.

But, however one cuts the data, a rise in AFAs (see tables below for most recent data, and then year before) would suggest the likelihood of the additional use of fixed fees, which is lumped into this figure.

LexisNexis data (2021).
LexisNexis data (2020)

In the most recent data, i.e. for the last year, the report found that insurance saw the largest amount of AFAs, at just over 25%, followed by employment at around 24%. The lowest area was environmental cases, down to about 10%.

Given the wide range of what AFAs can cover, it’s hard to give concrete reasons for the variation across practice groups, especially as the distribution year on year is not consistent.

But, back to the key point. More AFAs tends to mean more chance of clients scoping out work beforehand and then demanding a fixed fee for all or part of the work.

I.e. this means the law firm and/or ALSP can do that work however they please – as long as they meet the standards expected – but that they will get the same fee for it however it is done.

For the provider(s) there is now a huge incentive to be more efficient by using legal tech productivity tools, such as NLP analysis software – if they are already set up for this. This is because the more fee earner time – and this is all about time – that is spent labouring over this fixed fee part of the work, then the less those lawyers can be used by the firm to book more profitable billable hour work elsewhere – and perhaps even for the same client.

Moreover, as firms get used to thinking this way, the more any type of legal tech that drives up efficiency and therefore increases productivity becomes important, from better KM tools, to doc automation, to NLP review and more.

Of course, as explored yesterday in the piece – How Do You Calculate the ROI of Legal Tech? – there are many different ways to find value in technology. But, efficiency under a fixed fee, (or where time perhaps is not billable at all), is where such tools have an absolutely clear value proposition and even the most reticent of law firms have little alternative to embrace these approaches….

Unless they in turn hand over that work to ALSPs – which they increasingly are doing as well….

But…also, the ALSPs are not immune to the use of tech to drive productivity either. If an ALSP can utilise tech tools to do the job faster and retain spare capacity to focus on other fee earning process matters, then they will make more money by the year’s end as well.

In short, although time vs efficiency is only one of the levers of legal tech economics, it remains – and perhaps always will – one of the most powerful. So, more AFAs is good news for legal tech.

The full CounselLink Trends report is available for download here.

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