How I think about — AFA Design
A good AFA survives the matter it was written for.
Alternative fee arrangements fail for predictable reasons: scope wasn't bounded, change-control wasn't priced, and the upside-share was symbolic. The fee model is doing real work only if both sides can name what triggers a renegotiation before the matter starts.
Do
Practice- +01
Define the scope in deliverables, not activities
Activities ('research', 'review') invite scope creep. Deliverables ('one round of diligence on disclosed contracts up to N') give you a renegotiation trigger.
Source — ACC · Value-Based Fee Design
- +02
Price the change-control mechanism up front
Every AFA should specify what counts as a change and how it's priced. Without it, the first surprise becomes a write-off.
Source — BigHand · AFA Playbook
- +03
Tie success fees to client-defined outcomes
If the client can't articulate what 'good' looks like at signature, the success fee is decorative. Write the metric, not the adjective.
Don't
Patterns- −01
Don't agree to a fixed fee without a phase gate
Fixed fees that span the entire matter put all the timing risk on the firm. Phase gates let both sides reset without blowing the deal.
Source — Thomson Reuters
- −02
Don't cap without a collar
A fee cap with no floor turns every efficiency gain into a client discount. The collar is what makes the cap commercially honest.
- −03
Don't promise 'budget certainty' as a value prop
Clients buy budget certainty from their CFO, not their counsel. The value prop is alignment — that the firm wins when the client wins.
Source — Altman Weil
§ References
Where this thinking comes from
- ACCValue-Based Fee Design
- BigHandAFA Playbook
- Thomson ReutersAlternative Fee Trends
Synthesised from publicly available reports and commentary. All views my own.