The votes are in. Clients are loving AFAs. And we’ve got the data* to show just how much:
Alternative Fee Arrangements (AFAs) now account for $21.3 billion of outside counsel spending in 2015, up from $13.1 billion in 2013. AFAs are the biggest growth market around—registering a 19.8% compound annual growth rate for the last 3 years.
Outside counsel spending under AFAs jumped to 35.6% of total spending in 2015 up from 21.7% in 2013. The surge is coming primarily from larger spending clients.
The number of companies using AFAs shrank to 68.4% from 72.4% in 2013, as a smaller number of clients spend substantially more on AFAs.
Top legal decision makers credit their new love of AFAs to improved client focus, predictability in budgets, a more streamlined approach to the work, and the savings—which remain well in the double digits. Clients using AFAs report savings of 13.9% in 2015 compared to 14.1% in 2013. These savings effectively add $2.7 million to the average client’s legal budget.
The AFA of choice is overwhelmingly the fixed fee. Clients like the simplicity of the agreement and goal. No other AFA even comes close in terms of preference. Fixed fees get to the heart of the matter—a clear goal and an even clearer budget.
The jump in AFAs explains how clients have been able to keep their outside counsel spending flat while they experience growth in new, more complex matters. AFAs have finally become the cost control tool they were intended to be.
Visit our next post: The 22 Law Firms Best at AFAs to see the law firms clients identify as best at developing and delivering AFAs, along with the release of our newest, complimentary report: BTI State of Alternative Fee Arrangements.
*Based on BTI research conducted between March 2015 and September 2015. BTI conducted more than 300 independent, individual interviews with CLOs and General Counsel at Fortune 1000 companies and large organizations.