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Blended rates and a test to see whether they encourage more efficient staffing

Allstate Corp. has recently implemented blended rates with several of its preferred providers, according to Corp. Counsel, Vol. 14, May 2007 at 8. What struck me more was that Robin Sparkman, the editor-in-chief of that magazine, suggests that the insurance company is to some degree testing this method of cost control.

“The insurer wrote in its application [for Best Law Department] that it wants to find out ‘whether blended rates help encourage more efficient staffing of matters, and hence, a lower effective hourly rate’ or not.” That sounds to me like the law department is consciously experimenting with some group of law firms that will bill blended rates and another group of law firms that will bill for similar kinds of matters on, I presume, standard or discounted hourly rates. Only by a controlled experiment of this kind will Allstate, or any other law department, be able to prove whether and to what degree a particular cost-control method makes a difference.

All of us in the law department management industry would benefit if there were more efforts to compare the efficacy of different techniques (See my post of Aug. 1, 2006 on natural experiments.).