AFA legal spend management in 2025: Trends to watch

In 2025, the way legal teams manage spend is set to continue to change. Alternative Fee Arrangements (AFAs) are becoming a bigger part of the equation, now accounting for 23% of external legal spend, according to Bloomberg—and this number is only set to grow. For many legal teams, AFAs offer the promise of predictable costs and better value for money.

But here’s the challenge: managing AFAs isn’t always as simple as it sounds. Without the right tools, oversight, and relationships, AFAs can suffer from scope changes, leading to budget overruns, and internal pressure to justify the additional spending. 

As Chris Grant, HSBC’s Head of Legal Market Engagement, explains: transparency and trust are non-negotiable. For legal teams, modern spend management platforms are key to achieving both. By offering continuous visibility into budgets and progress, these tools allow teams to catch issues early, stay on track, and make smarter, data-driven decisions.

In this post, we’ll look at the trends we expect to shape AFA management in 2025.

Why AFAs needs a rethink in legal spend management

One of the biggest hurdles to making AFAs work is trust. As Chris Grant, HSBC’s Head of Legal Market Engagement, points out in this podcast, transparency is a must-have for building effective partnerships. Without clear billing practices, internal stakeholders may question whether external legal spend is being managed effectively. This lack of clarity can create friction, making it harder to demonstrate ROI and maintain confidence in budgets.

Another challenge is balancing flexibility with accountability. Fixed or capped fees can help keep budgets predictable, but they’re not a set-it-and-forget-it solution. These agreements need to adapt to changing circumstances while staying aligned with financial goals. Without oversight into the in-progress work, even well-structured AFAs can drift off course—potentially leading to unexpected costs and internal pressure to justify spend.

To fully unlock the potential of AFAs, legal teams need to move from reactive management to a proactive approach. This means:

• Using continuous WIP data: Spot issues early and keep scope and spending on track.
• Demonstrating value: Align external legal spend with internal business goals and stakeholder expectations.
• Making smarter decisions: Leverage insights to refine fee structures and allocate resources more strategically.

Let’s now look at strategies we’re seeing leading firms use to better manage AFAs. We’ll start with the trends we expect the majority to adopt in 2025. ⬇

Trend #1. Continuous monitoring

Managing AFAs effectively comes down to one thing: staying in control. Traditional approaches, like periodic reviews, often mean spotting issues too late—after there have been material deviations in scope, caps can be breached, expectations missed. Continuous monitoring changes that. It gives teams the tools to stay ahead, track spending in real-time, and make adjustments before small issues escalate.

As AFA models become more tailored, this kind of oversight is more important than ever. Legal teams are moving toward hybrid arrangements—blending fixed, capped, or success-based fees—designed to match the complexity of specific matters. While these arrangements offer flexibility, they also require real-time tracking to make sure value is delivered without overspending.

One of the biggest advantages of continuous monitoring is catching scope creep early. By tracking spend as it happens, legal teams can identify when work is drifting beyond scope or when costs start rising unexpectedly. Timely course corrections prevent budget overruns and keep agreements on track.
But it’s not just about avoiding problems. Continuous monitoring empowers teams to:

• Adjust fee structures dynamically to reflect the realities of the work.
• Allocate resources effectively to keep efficiency high.
• Match the right AFA models to the right matters, ensuring alignment with business goals.

Beyond the practical benefits, monitoring also builds confidence and trust. With clear, continuous data, internal stakeholders can see exactly where budgets stand and how external legal spend delivers value. For legal teams, juggling multiple matters or corporates managing complex cases, this level of visibility is key to demonstrating ROI and ensuring strategic alignment.

Trend #2. Using data and AI

Data shows what’s working, where adjustments are needed, and where budgets might be at risk. For example, comparing capped fees against fixed fees can reveal patterns that help refine fee structures or reallocate resources more effectively.

AI takes this a step further by turning insights into predictions. Instead of just looking at what happened, AI-powered tools help legal teams anticipate what could happen next. Budget overruns, scope creep, and underperforming fee arrangements can all be flagged before they become issues. If certain agreements consistently lead to overspending, AI highlights the problem early—giving teams time to adjust or renegotiate terms.

Here’s what data and AI can do for in-house teams:

• Spot risks early: Predict budget overruns or inefficiencies before they disrupt broader business goals.
• Refine fee structures: Use insights to ensure arrangements match the complexity of the work.
• Show value clearly: Provide stakeholders with a clear picture of how external spend supports efficiency and strategic outcomes.

Data and AI also make transparency easier. Continuous tracking (as mentioned earlier) keeps legal teams informed at every step, making it simple to spot inefficiencies, course-correct, and show stakeholders that budgets are under control. For private equity firms managing multiple matters or corporate teams handling complex cases, this level of visibility is essential.

Trend #3. Tapping into technology

Managing legal spend under Alternative Fee Arrangements (AFAs) has always been a balancing act. Traditional methods rely heavily on manual checks, which can lead to inefficiencies, delays, and frustrations on both sides. Technology is changing that. By simplifying processes and giving legal teams real-time access to data, modern tools make it easier to stay in control of budgets and align spending with business goals.

Here’s what this means for in-house teams managing AFAs:

• Ensuring AFA’s stick to the agreed budget: Many traditional e-billing systems cannot collect AFA budgets at the phase level or often total budget agreed. Modern continuous data e-billing systems like Apperio can capture budgets at phase and total levels and then check the invoices do not go over the agreed budgets.
• Unlocking the real value of AFAs: Being able to see the amount of effort expended on an AFA demonstrates the value of putting the AFA in place.
• Speed up approvals: Automated workflows for invoices with a streamlined process, reducing bottlenecks and enabling faster invoice approvals—sometimes unlocking early payment discounts of up to 10%.
• Improve stakeholder confidence: Continuously tracking data provides a clear view of spend, helping legal teams demonstrate control and value to their organisation.
   

Technology not only reduces admin, it allows for smarter decision-making.

Now, let’s look at some more advanced trends that the more forward firms will start to use. ⬇

*Advanced* Trend #4. Optimising AFA models with benchmarking

Benchmarking helps legal teams get a clear view of how their AFAs are performing—and where there’s room for improvement. It goes beyond tracking and allows you to understand how your spend measures up to industry standards and whether it’s delivering the value stakeholders expect.

For example, comparing how fixed fees stack up against capped arrangements can highlight inefficiencies or overspending. If one fee structure consistently leads to budget overruns or delays, benchmarking can reveal where adjustments—like switching to a hybrid model—might work better. AFAs should also be monitored and benchmarked over time to ensure there is no creep or inflation. Ideally, with AI efficiency improvements there should be a reduction in AFA fees over the future.

Here’s how benchmarking makes a difference:

• Identify cost inefficiencies: Spot where your spend is higher with one provider against another or the market average and adjust fee structures to align with expectations.
• Refine your strategy: Use data to understand which AFA models work best for different types of work, like routine compliance versus high-stakes litigation.
• Prove value to stakeholders: Benchmarking isn’t just about saving money—it’s about showing measurable outcomes, like staying on budget or resolving matters faster.

With tools like Apperio, benchmarking becomes a proactive part of AFA management. Teams can compare performance across firms, regions, or case types to pinpoint underperforming arrangements. If capped fees consistently exceed budget for complex matters, for instance, the data can guide you to explore alternatives that provide better predictability.

*Advanced* Trend #5. Scaling AFAs across portfolios

Making AFAs work across a large legal department isn't easy. You need standard processes, clear visibility into costs, and consistent methods – just like implementing any large-scale business change. Without these basics in place, you'll likely face rising costs and misaligned goals.

The biggest challenge? AFAs need to work everywhere in your organization. Legal teams handle different types of work across multiple countries – from mergers and acquisitions to lawsuits to regulatory compliance. Each of these needs its own approach while still following your organization's standards.

Here’s what you need:

• Clear rules: Your legal teams need to know which type of fee arrangement to use in different situations. Should they use a fixed fee or a capped fee? Having clear guidelines helps them make these decisions quickly and consistently.
• Data: By tracking how different fee arrangements perform, you can see what works best for each type of legal work. You can spot problems early and make changes based on real results rather than guesswork.
• Modern legal spend management platforms: They gather data from across your organization and turn it into useful information.

Teams can then see exactly how money is being spent, make better decisions about resources, and ensure AFAs are delivering value throughout the organization.

The future of AFAs in legal spend management

Managing AFAs effectively is no longer optional in 2025. As these arrangements continue to grow beyond their current 23% share of external legal spend, legal teams need the right tools and strategies to stay ahead.

The trends we've explored – from continuous monitoring to AI-powered analytics – point to a clear future: data-driven, proactive management is replacing reactive oversight. Modern legal spend platforms make this transformation possible, giving teams the visibility and control they need to make AFAs work effectively.

For legal teams ready to embrace this change, the benefits are clear: better cost control, stronger firm relationships, and the ability to demonstrate real value to stakeholders. The question isn't whether to adopt these new approaches, but how quickly you can put them into action.

Ready to see the benefits of smarter AFA management for yourself? Book a demo of Apperio today.

Looking for more guidance? Read:

• Ebook: Maturity curve: Legal spend management
• Boosting cost control: the way you use Alternative Fee Arrangements matters
• From reactive to proactive: Managing legal spend before the invoice with Apperio