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Blended rates and some rumination on how they can be decided

A previous post mentioned an effort by Allstate Corp. to find out whether blended rates charged by in their law firms benefit the law department (See my post of May 23, 2007.). The editor’s note that refers to this project, in Corp. Counsel, Vol. 14, May 2007 at 8, illustrates blended rates with an example. “If a partner bills at $500 an hour, and an associate bills at 250, the company is charged a ‘blended’ rate of 375 per hour.” That formula is but one of many ways to arrive at a blended rate.

Many attorney-client relationships are not that simple and it would not be sensible to simply average the standard billing rates of one partner and one associate. For example, a law department might designate a core team of lawyers at the law firm (See my post of Dec. 8, 2006 about core teams in law firms.). The law department might blend the billing rates of those core team members and use that figure.

Alternatively, a law department might calculate blended rates for different levels of lawyers, such as first-through-third-year associates, fourth-through-sixth year and so forth. As another variation, a law department might choose a blended rate that is not a calculation based on actual rates. Instead, it might decree “This work is worth $280 an hour.”

I have even heard of a hybrid scheme: a blended rate applies, however arrived at, but a key partner is permitted to bill hourly because the law department wants ample amounts of his or her judgment and experience.