The Business of Law: AFAs and Litigation Finance Enter the Mainstream

Law 360’s recent article “22 Firms Win Top Marks From GCs on AFAs[i]” highlights how top firms have embraced Alternative Fee Arrangements (“AFAs”) in their practice.  While the billable hour model was the preferred method of billing clients as recently as a decade ago, the 2008-2010 financial crisis coupled with $2000/hour price tags for legal services, created a perfect storm for clients to demand that law firms create more cost-effective and efficient methods of billing.  What arose out of a necessity to stay afloat during (and after) the economic crisis has become an accepted method of gaining and retaining business.

In BTI Consulting Group’s recent report on AFAs, it noted that the use of alternate fee structures is at an all-time high as AFAs now comprise $21.3 billion of outside counsel spending in 2015, an increase from $13.1 billion in 2013.  Ranked high among the factors that motivate general counsel (“GC”) to work with firms that offer AFAs are the resulting efficiency and quality of work produced.  It was noted that the removal of the billable time structure from the equation effectively eliminated any incentive to spend excess time on a particular task. As clients gain more value and efficiency from the use of AFAs, the demand for such fee structures is likely to continue to rise.

Similar to the rise in demand for AFAs is the increase in use of litigation funding to finance a case, or portfolio of cases, through trial.  Like AFAs, litigation funding provides claimants and GCs with great value by assisting with the risks and expenses of high stakes litigation.  By helping to shoulder the burden of litigation, companies like Bentham allow claimants and GCs to pursue meritorious claims without a negative bottom line impact.  As the legal marketplace continues to evolve, firms that integrate alternative methods of finance and billing will remain competitive.  Litigation funding is a key element for them to consider in the process.