Alternative Fee Arrangement Types And Uses

The trend towards alternative fees has been a long-term evolution, not a revolution.  This trend is part of a broader strategic shift in the way in-house counsel manages outside counsel.

Alternative Fee Arrangements

Updated February 20, 2025 | Argopoint Consulting

AFA Types and Uses, Legal Department Consulting

alternative fee arrangements (afa) summary

Hourly rates from top law firms have risen sharply and continue to rise at a daunting pace. Top corporate law departments have embraced alternative fee arrangements (AFAs) in their outside counsel billing models.  Alternative fees are an alternative to the traditional billable hour model that offers benefits like cost control, cost transparency, efficiency, risk sharing, and predictability to in-house counsel.  These can drive efficiency in the use of outside law firms. 

At Argopoint, we specialize in legal spend management and have advised Fortune 500 corporate legal departments on implementing customized AFA structures that align legal costs with business objectives. Today’s general counsel (GCs) and chief legal officers (CLOs) are increasingly adopting value-based fee arrangements to enhance budget certainty and improve law firm collaboration. 

common afa categories and examples

““The more sophisticated legal departments realize this isn’t sustainable,” said Argopoint managing partner Jason Winmill. “They employ a flood-the-zone approach to respond. They can insource the work, they can switch the work away from existing law firms to lower-priced law firms, they can use technology to better manage outside counsel bills, they can use alternative fee arrangements, and they can build partnering counsel programs and panels.””
— Jason Winmill in The American Lawyer Magazine

When considering the following summary of AFAs, their benefits, and what matters to use them for, bear in mind that not all legal matters are suited for AFAs and this list is not exhaustive or one-size-fits-all.  Key considerations when choosing an AFA will include aspects specific to your department, company, the nature of the matter or work.  With that said, common types of alternative fee arrangements: 

  • Fixed Fees / Flat Fees: by matter, phase, or other unit of work, offer predictable legal costs for well-defined legal matters.   

  • Capped / collared Fees: Provides an upper limit on fees, ensuring cost containment. 

  • Success-Based / Performance-Based Fees: Aligns legal spend with case outcomes.  These can include at-risk or contingency fees, bonuses/holdbacks, and risk collars, and incentivize efficiency by rewarding outcomes instead of process, meaning the firm shares the cost/risk 

  • Blended Hourly Rates: Combines rates across attorneys to stabilize costs. 

  • Subscription-Based Legal Services: Continuous legal support at a fixed monthly cost, or for free.  Example would be “hotline” free hours for day-to-day questions. Most good outside counsel guidelines and outside counsel panel models include provisions for these.

WHEN TO USE ALTERNATIVE FEE ARRANGEMENTS

Argopoint’s experience reviewing numerous alternative fee arrangements is that poorly designed alternative fees can increase risk and negatively impact economics for in-house clients.  But the benefits they offer can be immense - leading corporate legal teams are actively leveraging them to optimize their legal operations and reduce costs up to 25%. Argopoint’s deep expertise in AFA development as a consultant for AFAs ensures our clients achieve cost-efficiency without sacrificing quality, and for relatively little effort. We can help you through the process of outside counsel spend review:

  • Legal Spend Analysis, outside counsel guidelines review: Identifying cost drivers and analyzing historical data to optimize legal budgets. Ensuring you are getting the free services and preferential pricing that are now industry standard. 

  • Restructuring for cost-effectiveness: Restructuring projects through better staffing choices, delegation and use of technology in order to reduce costs leveraging alternative fee arrangements  

  • Outside Counsel Collaboration, selection, negotiation: Conducting law firm RFP, outside counsel panel review, enhancing law firm relationships to create win-win fee models. 

  • Effective alternative fee proposals: We help design alternative fee models and alternative fee arrangements that provide the value at the right cost. 

  • Data-Driven Decision Making: Leveraging legal analytics to improve financial predictability.