Warm up to the idea of not freezing billing rates

This is a hot topic. Crunched to save costs, many law departments freeze rate increases by their law firms. General counsel say, “We are losing money,” or “We can’t pass on cost increases to our customers,” so you law firms, our partners in legal service, need to share the pain (See my posts of May 1, 2005 and Dec. 16, 2005 on the malevolent sides of “partnering.”).

As a stop-gap measure the moratorium can perhaps be defended. To impose an Ice Age, however, not only makes law firms hot under the collar but also cools their ardor for assigning the best lawyers to your matters and giving their all. Economically, to the law firm a rate freeze is an imposed discount on what they see as cost-of-living annual upticks (See my post of April 23, 2006 on rebates compared to discounts.). Firms with six-pack ab rates are punished as much as flabby, couch potato firms with bloated rates.

Far better for law departments to negotiate fixed-fee arrangements or selectively grant rate increases that reward lawyers who have gained inability during the past year (See my posts of April 5, 2006 on “fixed fee” compared to “flat fee” and March 12, 2006 on selective rate increases by law firms.).

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