Though alternative fee arrangements (AFAs) have received widespread praise from law firms and clients for their transparency and predictability, the actual use of AFAs falls significantly short of expectations. A recent survey revealed that 94% of law firm partners still rely on hourly billing as their “primary billing model” [1].
AFAs are most easily suited for matters that are predictable and repetitive, such as residential real-estate leases and trademark prosecution. In these matters, a lawyer can expect to know the salient issues in advance.
Litigation, however, is unpredictable. Each individual litigant often has strong incentives to add new issues and parties to a lawsuit in the hopes of shifting the case in its favor. These changes can lead to dramatic increases in workload, which can threaten the profitability of AFAs. Without a way to price litigation according to the amount of legal work that is necessary in a case, it is difficult for a law firm to move away from traditional hourly billing.
One way to rein in the effects of unpredictability in litigation is to set prices for litigation milestones, which can be defined in terms of the business value that a law provides as opposed to a total number of hours billed.
Examples of litigation milestones include the start or conclusion of discovery; a ruling on a motion for summary judgment; and the completion of a trial. If a law firm were able to to predict the amount of attorney work needed to reach a particular milestone, the law firm could then know what pricing structure would be needed to create a profitable AFA for arriving at that milestone.
A major obstacle to milestone-based pricing is that law firms presently have no good way to make the necessary milestone-specific predictions about attorney work. Existing billing systems are ill-suited to the task because they do not associate time entries with milestones. There is generally no way—short of a non-scalable, time-consuming examination of complete case records—to discern which time entries in a case represent billable work on a particular milestone.
A crucial step in unlocking milestone-based pricing is to convert conventional, hours-based billing records into milestone-based analyses of attorney activity at scale. Once a law firm can predict, based on its experience in past cases, how much attorney work is needed to reach each milestone in a pending case, it becomes possible to design milestone-based AFAs for litigation.
By using technology to extract insights from the billing records they already have, law firms can make their fee arrangements more transparent and predictable.
[1] Thomson Reuters Institute, Law Firm Billing Efficiency and Write Downs at 2 (2023).