Beyond the Billable Hour: Understanding AFA Project Billing
For many law firms and their clients, the traditional hourly billing model is becoming a thing of the past. Enter Alternative Fee Arrangement (AFA) project billing, a flexible and increasingly popular approach that offers predictability and transparency. While it shares some superficial similarities with other billing methods like periodic retainers or fee write-downs, AFA project billing stands out with distinct advantages.
What is AFA Project Billing?
At its core, AFA project billing means that firms agree to bill specific “projects” within a legal matter for a predetermined, set amount. This contrasts sharply with the fluctuating costs often associated with hourly billing. The client knows upfront what they’ll pay for a defined scope of work, regardless of the actual hours spent or costs incurred.
How Does It Differ from Other Billing Methods?
It’s easy to confuse AFA project billing with other alternative arrangements, but key differences set it apart:
- Multiple Projects vs. Single Retainer: A matter can have numerous AFA projects, each with its own fixed price. In contrast, a matter can only have one periodic retainer, which is billed consistently each time the matter is invoiced. Projects, on the other hand, are billed only once when that specific project is completed or reaches a defined milestone.
- Flexibility in Scope: Budgets are often tied to specific task codes and timeframes. AFA projects are far more flexible; a single project can encompass multiple task codes and isn’t constrained by a fixed timeframe.
- Comprehensive Cost Inclusion: A significant advantage of AFA projects is that they include both costs and fees within one “big bucket.” Neither traditional budgets nor periodic retainers allow for this comprehensive inclusion of different component types. This simplifies billing and provides a clearer financial picture for the client.
- Independent from Budgets: AFA projects are entirely excluded from a matter’s overall budget. This means the fixed project fees won’t impact or be affected by the matter’s general budget tracking.
The Mechanics of AFA Project Billing
Even though a project has a fixed price, the actual hours worked and costs incurred are still meticulously tracked. This internal tracking is crucial for administrative purposes, performance analysis, and reporting, but it doesn’t change the pre-agreed amount the client is billed. Think of it like a periodic retainer in this regard – the amount billed is consistent.
Importantly, a matter can still have a mix of AFA projects and regular transactions billed at standard professional rates or cost prices. This hybrid approach allows firms to offer fixed fees for certain defined tasks while maintaining traditional billing for more open-ended work.
Reporting and Transparency
AFA projects are fully integrated into reporting systems. They can appear alongside regular transactions on the same client statements and are compatible with various reporting formats, including SSRS (SQL Server Reporting Services). Firms have the flexibility to include or exclude project transactions from SSRS Fee Analysis reports, while most other management reports will always include them. Dedicated reports for projects also provide specific insights into their performance.
One important note for firms using older reporting systems: While most budget reports typically exclude AFA transactions, custom “Matters” reports written in V11 might inadvertently include AFA transactions in actual and remaining budget amounts. Firms should be aware of this potential discrepancy.
Client Portal Experience
Clients can conveniently enter time entries related to AFA projects through the firm’s portal. However, direct management of a matter’s AFA projects is not available through the client portal; this functionality remains with the firm.
AFA project billing represents a significant step towards greater transparency and predictability in legal services. By offering fixed prices for defined scopes of work, firms can build stronger, more trusting relationships with their clients, moving beyond the traditional billable hour towards a more collaborative and client-centric approach.
#ProLaw #ProLawBackOffice #AFA #Projects