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Back to the Future: Alternative Fee Structures Revisited

By Stephen M. (Pete) Peterson
May 29, 2009

It comes as no surprise, given our current economic malaise, that the subject of alternative fee structures is a hot topic. Conversely, it comes as no surprise that this is also a hot topic during times of an economic surge. When I joined my first law firm in the late 1980s, I immediately learned two very important terms ' phantom income and billable hours. Back then, one of the most popular alternative billing methods was discounted rates provided to large clients. The discounts were a less exotic form of alternative billing and were largely based on the premise that the client would send the firm more work given the discounting. Later, we learned that some firms simply increased the hourly rate to minimize the discounting effect.

The simple discounting system was later morphed by clients, wherein current-year rates were based on discounted prior year rates ' in essence, a rate freeze. A good number of firms have frozen their rates for 2009. However, the problem with simple discounting and most alternative fee structures is the continued reliance on hours.

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