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Daily rates for outside lawyers are not an effective technique for law departments

For law firms to charge out its lawyers on a daily rate, sometimes called a per diem, is not an arrangement much talked about. Why?

Per diems could be like blended billing rates (See my post of June 13, 2006 on blended rates compared to effective billing rates.) in that the cost is known in advance. If a law firm were to tell a client that its third year associates bill at $2,700 a day, regardless of how many hours they work, wouldn’t that make budgeting easier?

The sensible answer is not to go with per diems. Barring huge matters or cases, a law department will not want one or more of its outside lawyers to be devoted solely to its matters. Ebbs and flows of work would guarantee some false billing. Per diems harbor the danger of any block bill: at what point can and should an associate or partner charge the full per diem rate?

Law department lawyers might fret that they will not get a full day’s worth of work, yet pay the daily charge. This arrangement puts too much of an onus on the inside lawyer to manage the outside lawyer and fill the daily plate with work.