In the feature article, Are the days of attorneys charging by the hour over? Maybe, Triangle Business Journal’s Jennifer Henderson explored the legal industry’s transition from billable hours—traditionally the main method of charging clients—to offering alternative fee arrangements (AFAs).
As legal costs can both add up quickly and also be difficult for businesses to manage, Smith Anderson Managing Partner Gerald Roach noted AFAs are becoming more and more part of the conversation between firms and their clients. “Over the recent years, we are seeing and using AFAs more so now than we have in the past, including fixed fees, success-based fees, volume discounts and flat retainers,” he said.
The article also stated that clients are the driving force behind AFAs, as they are becoming increasingly interested in alternative billing options from their law firms. This is especially true in the Triangle, where companies that often seek AFAs, such as startups and life sciences companies, are setting up shop. How well law firms are prepared for the shift towards AFAs may affect their ability to win work and grow profitability, and established Triangle firms like Smith Anderson are devoting increasing percentages of their business to these new arrangements.
“The recession focused businesses on managing all expenses. In the context of outside legal services, that translated into a focus on the absolute amount and predictability of fees and on efficient delivery,” said Gerald. “Clients are looking for excellent service at a fair and reasonably predictable price. AFAs are one way to achieve that delicate balance, and so have become particularly interesting to business clients with substantial external legal spends.”
Though clients in any industry may benefit from an AFA, the article notes certain situations lend themselves exceptionally well to flexible billing. Gerald shared that Smith Anderson frequently uses AFAs in matters including:
- Clients engaged in large transactional or litigation matters. These tend to be the most expensive and the least predictable from a legal perspective, so these clients want to manage those dynamics;
- Clients with recurring similar projects, who want to realize efficiencies across similar projects; and
- Clients with tight budgets for smaller projects in areas that are well-suited for fixed fees. For example, startups have long used AFAs.
Gerald added the firm is paying close attention to the legal industry’s shifts in billing methods, and Smith Anderson’s management is working to be more proactive in that regard.
“We have reviewed the use of alternative fees and believe that it is a good tool for having good client service, and so we have an internal effort underway with two partners in charge of that, to help us either increase the use of AFAs across practice areas, or at least increase the frequency of providing that option to clients,” he said.
Gerald’s practice involves domestic and international mergers and acquisitions, joint ventures, corporate governance matters, public company securities, private financings, technology law and advising boards of directors and special committees. He regularly represents public and private growth companies and private equity firms with their general corporate needs and domestic and international transactions. In January 2016, Gerald was named Smith Anderson’s Managing Partner for a three-year term. Previously, he served for 15 years as Chair of the Firm's Policy and Planning Committee and Team Leader of the Corporate Practice.
Triangle Business Journal subscribers can view the full article here.