IT may comes as no surprise to those law firm clients used to window shopping for the best rates that different firms charge different rates for the same job. But a new report finds many individuals firms also charge different rates depending on the client.
Differences in billing rates charged by some lawyers, depending on the client, range from US$350 ($410) to US$1000 ($1200), a new preliminary report on law firm billings has revealed.
Just over three-quarters of the 3448 partners, associates and paralegals surveyed billed different hourly rates to different clients for similar work, the report by CT TyMetrix and The Corporate Executive Board, based in the US, found.
“What this tells you is that there is a significant amount of pricing elasticity in the market, and that negotiation can be very powerful,” said Julie Peck, CT TyMetrix vice president of corporate strategy and market development.
Prices vary depending on a client’s negotiating abilities, and whether the work was done on an alternative fee arrangement, reports Corporate Counsel, a US magazine.
The report finds that the commonly reported “rack rate” charged by law firms, quoted in partner surveys and media, is often not the actual rate charged. It suggests client negotiation, even of the price charged by partners, affects the price dramatically.
The report, to be released in September this year, is aiming to help general counsel make better decisions about how and where to spend money with their law firms.
“It will give general counsel an enormous amount of bargaining power,” said Peck.
Hourly rates charged by lawyers globally dropped dramatically during the global financial crisis, for most clients. But it was during this time that clients gained bargaining power with their law firms.
In London, the average hourly rates for top commercial lawyers fell by a third. Partners at London’s five elite firms billed an average of £450 (AUD$844) an hour, down from £675 (AUD$1266) a year earlier, according to Jim Diamond, an independent legal costs consultant.
Diamond said that the figures showed that the average cost of instructing a partner at Allen & Overy, Clifford Chance, Slaughter and May, Freshfields Bruckhaus Deringer or Linklaters had dropped to a five-year low.
Banks are said to be the hardest bargainers, with one magic circle partner claiming they are demanding cuts of up to 30 per cent, “safe in the knowledge that if their current law firm does not like the reduced rate, a rival will gladly pick up the work”.
At the same time, aggressive smaller law firms, which offer lower rates but often comparable service, are moving to try to take share from bigger rivals.
With the top firms paying London rents and salaries but charging the same fees as regional law firms, Diamond predicts further pain for the industry.
Some of the fee reductions over the past 12 months have already fed through to static or lower profits at the four magic circle firms that release results.