Law Firm Pricing and Legal Procurement: A New Framework for Developing Win-Win Alternative Fee Arrangements: The Activity-Collared AFA

Abstract

This research paper speaks primarily to lawyers so that law firms may become more effective in pricing legal services and meeting clients’ growing demand for alternative fee arrangements (“AFAs”). First, the paper discusses core procurement concepts to shed light on the goals of the function. This background will help law firms better understand their corporate clients’ demands. Second, the paper discusses pricing strategies employed by other professional services providers to suggest alternative approaches for law firms. Finally, based on this research, I provide law firms and legal procurement professionals an alternative framework for crafting AFAs that more effectively balances risk between parties.

The goal is that these insights will lead to more frequent use of AFAs in the industry as well as more creative methods of implementation. Successful AFAs should provide clients greater cost predictability and provide law firms a better understanding about the client’s definition of success in each engagement, improving overall satisfaction with the law firm.

Keywords: Law Procurement Legal Sourcing Pricing AFA Negotiation Cost-Accounting Fixed Fee Collar Profit Margin Rate Inflation Market-based