More than three-quarters of senior lawyers believe charge-out rates at leading commercial law firms will rise over the next 12 months, despite growing pressure from clients to cut back on fee increases because of uncertain market conditions.
Results of the latest Legal Week Big Question survey found that just under a fifth of partners (19%) believe clients should brace themselves for above-inflation rises.
Meanwhile, a further 37% think charge-out rates will rise in line with inflation over the next year, with another 21% expecting to see increases of just below inflation. Fewer than a quarter of respondents think charge-out rates will stay static, with 21% saying they expect them to remain at 2007 levels and just 2% believing they will fall.
Freshfields Bruckhaus Deringer corporate head Mark Rawlinson (pictured, right) told Legal Week: “I suspect it will come down to normal supply-and-demand dynamics. There will still be premium rates for ‘bet the company’ deals, but where the client is suffering we will quite understandably be expected to share the pain.”
Despite their conviction that rates will continue to increase, the vast majority of partners (more than 90%) admitted they expect to feel more pressure from clients to cut back fee levels.
Of those questioned, 69% said they expect a certain level of pressure to drop rates, with a further 22% believing they will face considerable demands to cut fees. Only 7% of respondents said they were not expecting to see any pressure from clients to reduce charge-out rates.
Kirkland & Ellis
One magic circle partner added: “In hard times there is always pressure from clients. They are increasingly conscious of other professional service bills and for certain types of work will be pushing towards agreeing fixed fees more and more frequently.”
The survey found that partners believe clients have become increasingly concerned about the level of fees charged by major law firms over the last few years. Just over 60% of respondents said clients had become ‘a little more’ concerned about fee levels in recent years, with a further 15% claiming there has been ‘a lot more concern’ from clients who are much less happy with fee levels than in the past.
Only a handful of partners (5%) said they felt fees have become less of an issue in recent years, with just under 20% claiming clients’ attitudes were unchanged.
Meanwhile, expectations about what is the highest reasonable hourly rate for senior transactional partners reveal that almost 10% of partners believe £1,000 would be a fair maximum, with a further 15% saying £800 or £900 was a reasonable figure.
A maximum fee of £600 an hour was the most frequently ear-marked category by partners, receiving 29% of the vote. A further 22% went for a rate of £700 while only a combined total of 25% opted for £400 or £500.
Travers Smith corporate head Chris Hale (pictured, left) said: “I suspect average billing rates will increase by a smaller amount than in previous years, because that is broadly what happened when the dotcom bubble burst. However, if clients want a particularly senior individual, cost is likely to be less of an issue and charge-out rates at the top end are likely to remain high.”
Rawlinson added: “Law firms are becoming a bit more savvy and realise that you need to talk to the client up front about fees. You need to talk to general counsel and help them out if they need it — you need happy clients or they will go elsewhere.”