Corporate clients purchased fewer hours from law firms in 2013 than they did the year before, even as they paid more for what they bought. Hours were off by 1.3 percent, while fees were up by 1.6 percent. The revenue gain was powered by a 5 percent year-over-year increase in collections during the fourth quarter of 2013. These are among the most telling results of the latest LegalView Legal Market Index, which is produced by TyMetrix, the giant electronic billing clearinghouse and data analytics and advisory company.
The index is based on the purchase of legal services by 70 large corporate clients spread across eight industry groups that range from financial services and health care to industrials and technology. The LegalView 70 includes big companies: 21 are in the Fortune 500; another 12 belong to the Fortune 1000. These clients hire a lot of firms: In each quarter last year these companies used 181 to 183 of the Am Law 200 firms and more than 3,000 others. All told, according to the TyMetrix data, the companies spent $5.1 billion on outside legal services over the last two years.
The LegalView Index is different from other measures of the legal market. It is based on actual dollars paid by clients, not on surveys of law firms. In one such survey, Citibank last month reported its findings for 2013 based on returns from 126 of the Am Law 200 and 54 other firms. The bank said that in its survey sample it found gross revenue up by 2.5 percent.
Overall, attorney hours purchased by the LegalView 70 were down, year over year, in the first three quarters of 2013. Fees, meanwhile, were up in every quarter but the second. For analytical purposes, TyMetrix divides its report into three groups: The Am Law 100, the Am Law Second Hundred, and non–Am Law firms. According to the Index, only the Am Law Second Hundred showed year-over-year increases in both hours purchased and fees paid in all four quarters of 2013.
While demand for hours was down overall, the pain was not distributed evenly. In 2013, the LegalView 70 paid for 8,065,356 hours, 105,173 fewer hours than the same companies purchased in 2012. Firms in the Am Law Second Hundred showed an overall gain of 25,278 hours, or roughly 3.1 percent. But losses by The Am Law 100—down 66,617 hours, or 2.8 percent—and by firms outside The Am Law 200—down 63,834 hours, or 1.3 percent—dwarfed that modest gain.
Another way to view the data is by a simple market-share analysis. Using the index numbers, clients bought a disproportionate share of lawyer hours—29 percent—from the Am Law 100 firms. By contrast, the Second Hundred firms logged 10.5 percent of the hours purchased in 2013.
Fees followed a similar pattern. Overall, they were up by $40,360,67, or 1.6 percent. Both the Am Law Second Hundred and non–Am Law firms recorded fee increases last year. Fees for the Second Hundred firms bumped up $13.8 million, or 4.9 percent; non–Am Law firms’ fees were up by $29 million, or 2.5 percent. The Am Law 100 firms were down by $3.5 million to $1.105 billion, or three-tenths of 1 percent, essentially flat.
These are not misprints. The 70 clients in this index spent nearly as much on The Am Law 100—43 percent of the sum they spent on legal services in 2013—as they did on the 3,000 firms outside The Am Law 200. The non–Am Law firms received 45.6 percent of the fees paid by the LegalView 70 last year.
Despite the flat demand, firms were able to increase their collected rates last year. The average hourly rate charged by The Am Law 100—combining partners, associates, of counsel and paralegals—was up 2.5 percent, to $473.12. The Am Law Second Hundred firms showed an increase of 1.7 percent, to $346.69. And hourly fees paid to non–Am Law firms were up 1 percent, to $233.70.
The averages disguise the fact that within each category some firms were paid more than others. For instance, clients paid the 25 Am Law 100 firms who constitute the top quartile on the profits per partner rankings at an average rate of $601.31 an hour—a sum 27 percent greater than the Am Law 100 mean.
TyMetrix also analyzed the spending patterns by the LegalView 70 in 10 practice areas. Again, the activity was uneven. The largest category, corporate work, covers everything from antitrust and governance matters to mergers and acquisitions and white-collar internal investigations. Both litigation and transactions are included. Spending was down by about $71 million in the corporate category in 2013, to $624 million. Despite the drop, the amount spent on corporate work far exceeded the second-place category, intellectual property, where the LegalView 70 spent about $384 million. However, IP activity was roughly flat—down by about $950,000.
The biggest spending increase came in the general liability category, which encompasses litigation in any of 29 areas ranging from class actions to toxic torts. On those matters, clients increased their spending from $178 million to $221 million in 2013.
It could have been worse. Work performed and bills collected in the fourth quarter helped the overall performance. Clients paid their Am Law 100 law firms $12.1 million, or 4 percent, more in the last three months of 2013 than they did during the same period in 2012. Compared to the third quarter of 2013, there was also a surge: an increase of $32 million paid, or a jump of 11.9 percent. On a year-to-year comparison, the Am Law Second Hundred firms were paid about $1.3 million more, or 1.7 percent, in the year’s fourth quarter than they were during the same period in 2012. Compared to the third quarter of 2013, the group’s receipts jumped by $5.5 million, or roughly 7.8 percent.