What Are Alternative fee Arrangements?
Law firms typically bill clients based on a set hourly rate, but an Alternative Fee Arrangement (AFA)—also known as a Special Fee Arrangement—provides a contract a different payment structure for the firm.
According to the American Bar Association, AFAs aren’t designed to bill more than what a firm’s hourly rate would be. Rather, they outline an appropriate fee based on the value received by the client, as well as how that client sees value. Alternative billing should be determined by what is reasonable and fair to both the client and lawyer.
However, AFAs don’t mean that a firm bills the client for less than its hourly rate. If a client places greater value on completing work in an hour instead of three, for example, your urgent work doesn’t automatically come with a steeper price tag than your usually fee for the same amount of time. Keep reading to learn more about the different types of Alternative Fee Agreements.
Hybrid Alternative Fee Arrangements
Fee Collars: This is defined by hourly rates with minimum and maximum fees quoted.
Fixed Fee Plus Hourly: A small amount of the charges may be dependent on a fixed or flat-fee basis, and a portion charged on an hourly-rate basis because parts of the engagement cannot easily be defined.
Fixed Fee Plus Success Fee: This hybrid is utilized when the firm in question has a proper understanding of the services needed, and the client and the lawyer are both willing to share in the risks associated with the matter in question.
Hourly Rate Plus Contingency: By merging both hourly billing and a contingency factor, the client and lawyer are splitting the risks. Since a portion of the fee will be hourly— possibly at a reduced rate—the lawyer is guaranteed a minimum amount.
The Categories of Alternative Fee Arrangements
Flat Fee or Fixed: This is the simplest method of alternative pricing, and it means charging for a predetermined service at a flat or fixed rate. This fee may be negotiated for the whole service or just a small part of it.
Success or Contingency Fee: This fee is based on the results achieved. It requires a clear agreement of what the anticipated results will be and what will not be covered under the actual fee arrangement.
Task or Unit-Based Billing: Identified tasks or components of the transaction are used to narrow down the fee in this type of agreement.
Percentage Fee: A percentage fee, which is different than a contingency fee, is made up of a schedule of fees related to the amount involved in the matter that is being handled.
Retrospective Fee: This differs from most AFAs in that the precise amount of the fee is not known to the lawyer or the client until the matter is concluded.
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