I’ve always wondered what the phrase “The king is dead. Long live the king” means. If the King is dead, why are the following words “long live”? According to Wikipedia, the phrase is a traditional proclamation made after the accession of a new monarch. I remember this phrase every time I read about the death of the hourly rate and presumably the “accession” of the alternative rate agreement (AFA). Well, to paraphrase Mark Twain, “reports of the death of the hourly rate have been greatly exaggerated.”

Yes, I am well aware of the statistics that indicate the increasing use of AFA. However, a closer look shows that the hourly rate, while not as healthy as in the past, is not in danger of being placed on life support. First, some people mislabel discounted and combined rates as AFA. That is not an alternative; the rate is still based on one hour of work. Actual AFAs may include (1) fixed rates, (2) a combination of fixed, hourly, or contingency rates, (3) success rates, or (4) a rate formula tied in some way to value. Second, statistics indicate that those who use AFA do so infrequently.

Now, I’m not a fan of the hourly rate. I agree with its critics that it offers no incentive for attorneys to work efficiently or seek quick resolution of legal issues. In addition, I applaud the notion that AFAs typically align the attorney’s risk with that of the client, have some value relationship, and provide cost certainty. However, three “Ts” stand in the way of any seismic shift towards AFAs: Tradition, Time, and Trust.

Tradition

The hourly rate has outlived the kings. Our profession takes time to change. We practice law the way we do because it has always been done that way. End of discussion. That mindset is hard to break regardless of the merits of why the change is needed.

Hour

Law firms must extract and analyze a variety of data on the historical costs of matters to propose an AFA that makes economic sense. That takes time. In many cases, companies are unable or unwilling to invest the time. It’s just easier to stick to the traditional hourly rate.

Confidence

Without confidence, both attorney and client frequently fear that any AFA involves taking unreasonable risk. The attorney fears that the normal profit margins built into the hourly rate will not materialize once the matter is concluded. The client fears that an issue could be resolved in such a way that the law firm makes a windfall compared to what would have been earned from the hourly rate. If there is trust between the parties, those fears can be overcome and not create a barrier to an AFA. However, in today’s “what have you done for me lately?” Legal market, I wonder if there is some kind of critical mass of trust needed between attorneys and clients.

AFA: a risk worth taking

When advising attorneys at AFA, I always recommend a calculated analysis of the feasibility and benefit of an AFA. In these modern times, law firms should consider the merits of AFAs in the new competitive legal environment. Unfortunately, in many cases, one or all three “I’s” get in the way.