Clients are increasing their use of alternative financial arrangements, according to new data collected from LexisNexis' e-billing platform CounselLink.

The company's 2019 Enterprise Legal Management Trends Report, released Monday, looked at data aggregated from 7 million invoices and approximately 1.7 million matters. While in 2017, 9.2% of matters included a nonhourly billing component, that number rose to 12.2% in the latest period.

Kris Satkunas, director of strategic consulting for CounselLink and the author of the report, suggested that the talk that's been brewing for years about moving away from hourly billing is starting to turn to action.

"I've always heard a lot of interest and questions from general counsel: 'Tell me where other people are using AFAs, how do you suggest we could get good value?'" she said. "Those conversations have continued and we're finally at the point where people are willing to take the plunge and experiment with it more."

The CounselLink numbers also show that the percentage of dollars billed under an AFA increased from 7.4% to 8.3% from 2017 to this period.

"We're hoping that it is a true trend," Satkunas said.

The report segments the firms that use CounselLink into buckets based on size, and it found a growing gap between the actual billing rates charged by partners at large firms (with over 750 attorneys) and the next tier (those with 501 to 750 attorneys). This gap stood at 40% in 2016 and grew to 45% in 2017. Now it's at 53%.

In a related finding, the largest firms also dominated the market with regard to high-value work. They handled 74% of the billings generated by M&A transactions in the period, 58% of finance, loans and investment work, 55% of corporate, general and tax work, and 52% of regulatory and compliance work. Aggregated, the largest firms now have a 57% share of this work compared with a 50% share in 2016.

According to Satkunas, these two sets of findings suggest that the gap in rates doesn't necessarily mean that all large firms are increasing their rates, but rather that the mix of the work they are doing is trending toward the upper end. That's a reversal from several years ago when more very high-value work, including M&A, was going to firms in the second and third tiers, by size.

"That trend obviously didn't stay," she said.

But the numbers also suggest a burgeoning opportunity for these smaller firms with full-service offerings, especially if the wider U.S. economy begins to stall.

"There are opportunities for corporate counsel to lower their spending and work with smaller firms," Satkunas said. "There's an opportunity for those on the law firm side to recognize that and market themselves to take advantage of it."

One final trend in the data should give these smaller firms hoping to sell themselves to new clients some hope. The recent trend toward corporations consolidating their legal spending in a smaller number of firms hasn't reversed itself. But it shows signs of a plateau. According to the report, 61% of companies have 10 firms or fewer accounting for at least 80% of outside counsel fees, compared with 60% in 2018 and 62% in 2017.

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