June 2013 | Finance Issue
The Empowerment Model: An Innovative Approach to AFAs
Alternative fee arrangements (AFAs) are broadly defined as billing methods that employ a non-hourly rate. AFAs have long been a part of theoretical discourse; however, implementation and utilization of these models within the law firm structure have expanded exponentially over the past five years. This has been largely in response to a downturn in the economy, a more informed client base, and direct consumer demand.
Power is often described as the imbalance of authority, allowing one party to define a situation in their own terms. A power disparity between client and advisor often exists within the legal system. Given the nature of our profession and unique set of skills, clients must rely on our expert advice to make impactful choices. Our canon of ethics requires empowering clients to help them make informed decisions.
We empower clients through information and education. Legal knowledge was previously confined to our law libraries, with access reserved for the educated few. Clients are now bombarded with an overabundance of online information, resulting in our new role as advisors helping them digest and process their unguided “research.”
AFAs range from contingency fees, in which the attorney typically collects an agreed-upon percentage of the amount obtained or protected, to fixed fees or flat rates, which are amounts assigned to specific tasks or entire matters. Value-based billing is considered a collection of AFAs which the Association of Corporate Counsel defines as “the pricing of legal services to better allocate risks and align incentives in ways that best suit the client’s goals for a particular case or portfolio of work.” The Empowerment Model is an approach to value-based billing which assesses the priorities of the client and allows them to actively participate in their matter. The model is extrapolated from the value proposition of time versus money. “Value” is broadly defined to include the client’s access to these resources. The model assigns an amount to a particular task, able to be undertaken by client or attorney, promoting a cost savings value-based mechanism.
Money has an inherent and concrete worth. Time is subjective, and while we have assigned a rate to the billable hour, the value is often not shared with or effectively communicated to clients. Empowering a client to undertake a more active role in their representation promotes understanding and appreciation of the value of our services.
The Empowerment Model employs a hybrid system which breaks down a matter into hourly, flat rate, and potential client tasks. Unbundling or deconstructing one’s practice is necessary to assign tasks to each category. “Unbundling” refers to delivering legal services a la carte and assisting clients in a limited role (such as the “access to justice” initiative in Massachusetts). This is an integral concept in the Empowerment Model; however, representation need not be confined to clients seeking limited engagements. Merely allowing clients to decide what role they will play in their representation is empowering and adds transparency to the process.
Employing any AFA requires an investment in time and other resources, which has led many practitioners to understandably hesitate to undertake this formidable task. I advise taking small steps toward implementation. Start with a predictable matter to construct your model. Break down each task that goes into the successful resolution or eventual conclusion of a matter. Include the tasks that are performed by your non-attorney staff. This may even result in an opportunity to cut employee overhead by passing on some tasks to the client. Assign a flat fee to each task or categorize it as hourly. Identify assignments with potential for client inclusion. This process will result in a fee schedule from which you can readily estimate the cost of representation, and which will be transparent and easily understood by clients.
The second preparatory piece is the production of educational resources. Each of your client tasks should come with a well-drafted set of instructions, including a strict timeline for completion. Clients should have access to this information to determine which, if any, are achievable and desirable assignments. Clients should be advised that if tasks are not completed within the given time frame, that they may forfeit their credit. After educating your client regarding the tasks and matter, let them assign each piece to the firm or undertake it independently. Even if the client opts to assign the entire matter to the attorney, they have been empowered by having the choice, and educated regarding the value and substance of the matter and representation.
The amount of autonomy obtained will depend on the individual case and client. Opportunities for client participation are in every type of practice. For a litigation matter, construct a template with examples of how you digest different discovery documents. Allow your client to perform document review by completing this form. Their personal knowledge will add value to the descriptions. Try to systematize the intake process through an electronic questionnaire completed by the client, collecting information that can be automatically uploaded to form documents and often filed online for particular projects with administrative agencies. Limited assistance representation is state-dependent, but can include ghost-writing pleadings for a client to file independently, or alternatively only attending an in-court appearance. The completion of each of these tasks has a value, the savings of which can be credited to the client.
AFAs are no longer a theoretical construct. According to a recent Altman Wiel study, over 95 percent of the medium and large firms surveyed are using AFAs. The Empowerment Model promotes a partnership with your clients, addresses common transparency concerns regarding our profession, and assigns a concrete value to the services we provide. The initial investment of time will result in financial reward, along with an empowered, informed, understanding and appreciative client.
Sofia S. Lingos is an attorney and founder of Lingos Law, LLC in Boston. She can be reached at 617.695.0009.
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Margaret M. DiBianca, Young Conaway Stargatt & Taylor, LLP
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Nancy L Gimbol, Eastburn & Gray
Richard W Goldstein, Goldstein Patent Law
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