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Law Firms Discount ‘Rack Rates,’ While Boutiques’ Flat Fee Deals Put Pressure on Billable Hour

Posted Jan 17, 2012 8:52 AM CDT
By Debra Cassens Weiss

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A law firm created in 2010 by two former lawyers from Sonnenschein Nath & Rosenthal has quadrupled its client billings with an emphasis on alternative fees.

The firm, ZwillGen, was formed by lawyers Marc Zwillinger and Christian Genetski, the Washington Post reports. It has grown from four to eight lawyers with its flexible billing philosophy, an approach that is contributing to the success of boutique law firms, the Post says. Its story is titled, “Is Time Running Out on the Billable Hour?”

Meanwhile, large law firms are also getting in on the action. The story quotes Michael Wu, general counsel for language-learning software company Rosetta Stone. Alternative fees are “much more prevalent,” Wu said. “Every firm needs to do a discount now. The ‘rack rate’ is not the rate anymore.”

The story refers to an American Lawyer survey of leaders at large law firms in which more than 81 percent said more clients are seeking discounts, and about 55 percent said clients are asking for deeper discounts. Of the law firms that used alternative or value-based fees in 2011, 92 percent had used flat fees, 88 percent had used blended rates, 83 percent used incentive or success fees, and 82 percent used collars or caps. (According to the Post, a collar is an arrangement where there is an agreed-upon flat fee, and a discount when the bill exceeds the flat fee by a certain percentage.) An American Lawyer story and a chart (PDF) summarize the results.

Prior coverage:

ABAJournal.com: "Law Firms Are Doing Away with Billable Hour for Lobbyist Lawyers"

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