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ABA Law Practice Today - March 17, 2014
As clients seek more flexibility, predictability, and transparency in their legal services, alternative fee agreements, or AFAs, are becoming more common. AFAs are becoming more important to clients of small to mid-sized firms, who are demanding to know with greater frequency how much something will cost. Successfully managed AFAs can lead to better partnerships with clients, and AFAs can improve client retention. For small to mid-size firms, success starts with determining the actual cost of providing legal services, figuring out how to deliver those services more efficiently, and improving communication with your clients throughout the entire process—in other words, legal project management. Many small to mid-sized firms struggle with AFAs because good legal project management is it not part of many attorneys’ day-to-day practice.
Know the Objectives and the Deliverables
Large firm clients generally have savvy legal departments and understand more about their company’s legal matters than the average small to mid-size firm client without in-house counsel. That is why education is the most important phase of the AFA process for small to mid-sized firms. Your business-owner client needs to be educated about the legal process and what lies ahead, including all the possible options and outcomes. Communication is a two-way street. Before you start advising, listen to what your client says, or doesn’t say. Don’t short-change or underestimate time spent getting to know your client and his or her matter – it will pave the way for better management throughout the representation. Getting buy-in, setting expectations, and defining scope, are all part of the learning process for attorney and client.
Plan the Matter
After you have clearly defined your objectives, scope, and deliverables, determine what you will need to know to define the costs for each phase of work. This kind of analysis can be performed for a set fee so that clients can make a business decision about how to proceed. In matters requiring expert opinions, it is critical to have your experts involved at this early stage and obtain estimates for their work. All expert costs must be included in the budgeting process.
A task analysis is a breakdown of time and costs by partner, non-partner attorney, and paralegal. For example, if you know that a motion for summary judgment is likely your team must budget for every hour spent preparing and arguing the motion. That means time estimates for research, drafting, partner review and approval, answering response motions, and time for argument. Each component should have a specific hour increment allotted to the task.
With this data, the firm can then set fee agreements that fix the fees to be charged at various stages in the matter. These fees are then agreed to by both the firm and the client and become the set fees to be paid in the matter moving forward. Our firm has been successful in fixing the cost to complete pleadings, written discovery, depositions (within a set limit), pre-trial work and trial. By allocating fees to each of these stages our clients can assess their position in each phase of the case.
When planning, small and mid-size firms can draw on experience from past matters to verify assumptions made with respect to the developing AFA. Some firms have begun coding all time at a task and/or activity level in order to help analyze time spent in a more efficient manner. Crafting and managing an AFA becomes much easier when you know the approximate time and cost necessary to resolve each type of matter. After you’ve planned the matter, you must communicate the plan to the client and decide how you are going to communicate throughout the matter.
Manage the Matter
Assigning someone to actively manage the matter is important. Active management means reviewing time spent on a daily or weekly basis to determine whether the matter is on track. Your project manager should have frequent contact with team members regarding where they are with their tasks in comparison to the planned budget document so the firm and the client know where they are within the agreed upon cost framework. For small to mid-size firms, reporting time to a planned budget document is an easy, low-cost, way to manage your budget at the task level. Do not wait until monthly pre-bills are released. Reviewing billable activity that could be almost a month old decreases the value of an AFA for the law firm and the client. Waiting four weeks to tell your client you are over budget or outside the defined scope often results in a write-off for the firm and more often aggravation for your client.
Stay in Communication and Avoid Scope Creep
Your attorneys should talk to clients about what has been done and what is coming next. Send progress reports to clients to thwart scope creep. Make sure your attorneys are staying on track. Validating assumptions made at the start of the matter goes a long way to ensure client satisfaction. As soon as attorneys find themselves outside the scope of work—they need to immediately talk to the client about the best course of action and begin the change order process. After representing the construction industry for over 25 years, our firm knows the importance of accurate progress reports and documenting when conditions change. The same principles apply in legal project management. Your clients deserve to know what is happening with their matter; no one likes surprises or arguing about money. Don’t let poor AFA management turn billable hours into pro bono hours.
Measure Outcomes and Close the Loop
Firms fail at legal project management when they don’t measure outcomes. At the end of a matter the firm needs to compare the AFA budget to actual time incurred and billed. Honestly assess whether the firm could have done better in setting assumptions or in performing the work. Measuring outcomes enables your firm to accurately assess your results and gives your firm a good starting point for its next AFA.
Successfully managing AFAs can be a challenge at first, but like implementing a customer relationship management system (CRM), once your firm makes it part of day-to-day practice, your firm will see the value. Making these five concepts part of your daily work activities will make effective legal project management part of your firm’s culture and create pathways to more successful AFAs, and hopefully, happier clients.
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