I recently tripped across a well-written article that addressed some of the tensions associated with blended rates ( http://adverselling.typepad.com/how_law_firms_sell/2013/04/are-blended-rates-alternative-fee-arrangements.html) . Ultimately the author spent significant time dissecting whether they represent an alternative fee arrangement or an hourly rate. He noted that distinction matters when measuring how much work law firms may claim to do under AFAs. And while that is an interesting question, I was drawn to a practical debate he asked others to have – are blended rates a good or a bad thing?
Law Firm Blended Rates – How to Avoid Getting Taken For A Ride
My POV: blended rates are perfectly fine if you make clear up front you will not accept getting taken for a ride.
What are blended rates?
In their simplest form a blended rate is when a law firm offers the services of two or more staff members at the same hourly rate when the staff members are normally billed at different hourly rates. Say attorney A has a standard hourly rate of $500 and attorney B has a standard hourly rate of $200. The firm might offer each attorney’s service at a rate somewhere between those two rates – say the midpoint or $350 an hour.
So what’s the issue?
As the above linked article notes, blended rates can invite mischief. The law firm may be reluctant to have attorneys who normally bill above the blended rate do work on the file. In turn, the client can end up with inefficient younger attorneys stuffing hours on its file at an alarming rate and lose expected and appropriate supervision, experience and judgment that more experienced attorneys would bring to the engagement.
And how do you avoid getting “taken for a ride”?
The answer lies in demanding a detailed budget for your engagement on the front end that includes the following elements:
- The phases of your engagement;
- The names of the staff members tied to the blended rate who will work on your engagement and their standard hourly rates; and
- The time each of those staff members is expected to spend on each phase of your engagement.
What does this get you?
- It sets a standard for the expected mix of hours between the various staff members;
- It tells you how the blended rate proposed corresponds to the expected hourly cost to do the work using standard hourly rates; and
- It puts you in a position to negotiate with the law firm about acceptable final outcomes regarding hour mix and average hourly cost on your engagement.
Suffice to say, if a blended rate is supposed to be appealing to a consumer, then it should, in fact, result in a lower actual hourly rate than what you’d pay using standard hourly rates. Such an outcome assures you weren’t stuck with less experienced, less efficient lawyers doing more work than expected on your engagement. And that detailed budget you should demand also helps you gauge whether any cost overruns versus the total expected cost for the engagement are justified.
About the author – Dave Sampsell is a 20-year lawyer with extensive experience managing large, complex legal engagements and overall corporate legal budgets. He presently serves as General Counsel of a NASDAQ listed company and is a Founder and Principal of BanyanRFP. BanyanRFP saves companies time and money through an easy-to-use, private and secure online application for the creation and processing of legal services RFPs. For more information, visit www.BanyanRFP.com