If a law firm agrees to give a law department a larger discount when the fees paid to the firm exceed a certain level (for instance, 5% up to $500,000 and then 7% for fees paid over that amount), does the higher discount apply retroactively to the initial payments? Obviously, the two parties need to anticipate and clearly state the answer.
With a step discount, a law department might push to send more work to the firm, to reach the higher discount level. On the other side, the law firm – if it faces a rebate for earlier fees paid so that the overall discount on all fees billed hits the agreed figure – may not want to go so high. (See my posts of March 24, 2005 criticizing step discounts, July 30, 2005 on 5-10% discounts being routinely granted and yet my post of Sept. 10, 2005 about infrequent discounts in the case of one major law department.)