Breaking Old Ground

Microsoft plans shift to AFAs, but buzz may outstrip practical influence

Microsoft sent waves through the legal universe earlier this month when the company announced plans to shift 90 percent of its outsourced legal work to alternative fee arrangements, or AFAs, within two years. Though Microsoft’s enormous industry clout made the shift major news, opinions vary on how much of a trickle-down effect it may yet have on other companies looking to innovative billing models for their outside legal work. Some experts say the buzz may be outsized because the scale of Microsoft’s shift, while dramatic, would not make sense for smaller companies with less money to spend on legal services.

“I think it will have some (influence), and it’s not because businesses are following Microsoft, I think it’s because firms will be following the firms that serve Microsoft,” said Ryan McManis, vice president and assistant general counsel of Level 3 Communications. “I think what you’re going to see (is) … the firms are going to look at it as something that they need to keep in their menu of options to offer.” He explained companies have considered more creative ways to approach billing for several years now. The concept of AFAs is certainly not new, and especially more well-known models such as contingency fees have been used for decades.

Brian Boonstra, chair of Davis Graham & Stubbs’ finance and acquisitions department as well as a member of the firm’s executive committee, said he estimates about 20 percent of U.S. companies’ legal spend currently is in AFAs.

“For most (corporate) consumers of legal services, they’re spending nowhere near what a company like Microsoft spends, and their needs will be nowhere near as predictable as what Microsoft’s are,” Boonstra said. “And so it’s much more challenging for (these companies) to set a budget on their total legal spend, let alone what proportion of that legal spend is going to be or should be alternative fee-based.”

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