This post was written by Andrew McLennan-Murray, technology services manager at Thomson Reuters

At ILTA 2013, a panel consisting of Eyal Iffergan, Hyperion Global Partners; Chris Emerson, Bryan Cave, LLP; Donald Knight, PNC Bank Legal Department; and An Trotter, Viacom Inc. shared their experiences with alternative billing. The panel opened the discussion by introducing some interesting numbers. They stated that 95 percent of law firms now offer some kind of AFA and all firms with 150+ attorneys do. At first glance, this makes it seem as if past predictions on the decline of the billable hour have come true. However, the same surveys shared by the panel showed that only 12 percent of legal departments used AFAs for more than 50 percent of the legal work they assigned to outside counsel in 2011 and on average law firms used AFAs for only 25 percent of their billing during the last three years. The billable hour is very much still king.

Top three reasons AFAs are not used more? The panel culled some responses from another survey, and the three responses they kept hearing over and over again were:

-“We’re concerned about the quality of work.”
-“It’s too difficult to determine new pricing structure.”
-“We can’t tell if we’re overpaying.”

Even though we haven’t seen a huge increase in the number of AFAs, the buzz in the legal industry still very much revolves around the demise of the billable hour. But why? The panel attempted to answer the question: are the AFAs that are in place working? The main metric they used was money saved, because at the end of the day why consider a different billing model if it’s not financially viable? In a survey the panel presented, the vast majority of companies reported some cost savings from AFAs. The survey considered legal departments and law firms separately, and it appeared that law firms benefitted slightly less from AFA cost savings (typically a 0-5 percen savings as opposed to 11-20 percent savings realized by legal departments).

One point the panel agreed on was very clear: A law firm who has a put together and well-managed pricing and billing department has a tremendous competitive advantage. Clients want to know what they can expect to pay, and if they feel they can trust a billing estimate they’re much more likely to sign with that company. Overall the session provided interesting insights into legal department and law firm takes on AFAs.