AFAs Trending Down in U.S. and U.K.
Note: This story presents more findings from the study CorpCounsel.com reviewed in a previous article, Litigation Trends Survey Predicts a Bumpy Ride in 2013.
In a surprise finding, the steady three-year climb in the use of alternative fee arrangements to pay outside counsel has abated, according to a survey of in-house counsel released Tuesday.
The 9th Annual Litigation Trends Survey from the law firm Fulbright & Jaworski found the percent of companies using AFAs dropped from 62 percent in 2011 to 52 percent in 2012. The report said the shift is evident as a general trend across companies of all sizes and in both the United States and the United Kingdom.
Otway Denny Jr., Fulbright partner and global litigation chief, said, In the past few years respondents have shown an increase in the use of alternative fees in an effort to keep costs low and predictable. But now that seems to have slowed.
(The Fulbright survey polled 392 in-house attorneys. Of the
respondents, most are general counsel and 14 percent are head of litigation. Seventy percent of respondents are based in the U.S., 26 percent in the U.K., and 4 percent in other countries.)
The survey report found that in 2011, some 52 percent of U.S. respondents said they intended to increase their use of alternative fee arrangements. But only 39 percent this year said they expect increased use over the next 12 months, indicating the downward shift will continue.
But there is also evidence of the opposite trend occurring in the U.K., where 42 percent of respondents said they intend to increase their use of AFAs in 2013, compared with 29 percent last year.
In the survey, larger companies from the health care, manufacturing, and tech industries led in the usage of AFAs.
By sector, however, use was down across the board, particularly in the insurance industry. Where 71 percent of insurance respondents reported using AFAs in 2011, the rate fell to only 50 percent in 2012.
The survey asked in-house counsel how effective various types of AFAs have been in accomplishing their companies fee goals. The perceived value varied somewhat by country.
The responses seemed to show that they like the fixed fee approach over capped fees or fees tied to a success[ful] outcome, Denny observed.
Among U.S. respondents, fixed fees were the most popular, with blended rate and capped fees next.
But in the U.K., the popularity of blended rate fees dropped significantly. Just 17 percent judged them very effective in 2012, compared with 77 percent in 2011, the survey showed.
Fixed fee arrangements also have become less common in the U.K., where performance-based fees more than doubled in popularity from 2011 to 2012.
AFAs accounted for a decreasing portion of overall U.S. work: 87 percent of U.S. respondents claimed that less than one-third of the money spent on outside counsel was billed via alternative fees.
Different types of fees were popular for certain types of cases. For example, the report said about a quarter of respondents used fixed fees for contracts and insurance litigation, while one quarter preferred performance-based fees for business torts and intellectual property cases.
In other findings, the report said:
- In-house hiring slowed: after rising in 2011, it flattened in 2012. But 13 percent of respondents expect the number of in-house lawyers who manage litigation to increase in the coming year, while only 3 percent expect a decrease.
- The 2012 U.S. litigation spend stayed level, with 53 percent of companies again reporting an annual spend of $1 million or more.
- There was a slight bump in the high-dollar range, where 27 percent of U.S. companies reported an annual spend of $5 million or more compared to 23 percent in 2011.
- Engineering and construction companies represented a big blip in the numbers, as 57 percent of them spent $5 million or morethe highest annual litigation spend among all industries represented in Fulbrights survey.
- Intellectual property litigation remains a top concern; 13 percent of all companies expect budget increases in IP and only 5 percent forecast a decrease.
See also: Litigation Trends Survey Predicts a Bumpy Ride in 2013, CorpCounsel, February 2013.