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The Best Firms Still Charge the Most
The National Law Journal
Big-firm lawyers still have a sweet deal. Top partners at major law firms continue to command premium hourly prices for their services.
The National Law Journal sampled 55 law firms from among the NLJ 350 our survey of the nation's largest law firms by headcount about the prices their lawyers are charging clients by the hour. The responding firms ranged in size from 128 to 3,746 attorneys.
Among our findings: The highest rate was $1,285, charged by a single real estate investment trust partner in Locke Lord's Dallas office, Bryan Goolsby, according to a spokeswoman at the 540-attorney firm. The lowest hourly rate for associates was $130 at Cincinnati-based Dinsmore & Shohl.
The median billing rate in 2012 was $432 at law firms surveyed by the NLJ that participated both last year and this year. Median partner rates were $517, a 4.5 percent increase from last year, and the median associate rate was $323, a 3.5 percent increase.
The higher prices increasingly serve as a mere asking price or suggestion, according to law firm consultants. While some clients are digging deeper into their pockets and paying the increases, many others drive harder bargains by demanding discounts and alternative fee arrangements.
"Since the recession, clients have been vocal and effective," said Mark Silow, managing partner of Philadelphia-based Fox Rothschild. The median hourly rate at his firm in 2012 was $435, a number close to the $432 median in our survey. Silow said the rates at his firm are "highly competitive."
Fox Rothschild attorneys receive significant pushback from clients when it's time for rate increases, Silow said, but clients aren't "scientific" about identifying where, exactly, to trim expenses. "They kind of take a shotgun approach," he said.
ROOM TO HAGGLE
Driving the uptick is what consultant Ward Bower calls a "car dealership sticker price" phenomenon. Law firms are upping their asking price to gain room to haggle. The wider margin gives clients the feeling they're getting a better deal.
"Law firms are negotiating downward," said Bower, of Altman Weil. "Many of them aren't charging the quoted rates with these kinds of increases."
For high-end legal work, law firms remain in the driver's seat, said Kent Zimmermann, a consultant with Zeughauser Group. Because clients will always need highly skilled, talented lawyers to handle their most sensitive matters, the increases at that end of the spectrum are pushing up the overall averages, he said. Attorneys who can charge the highest rates usually practice in white-collar defense, mergers and acquisitions, high-end corporate finance and securities and big-ticket litigation.
"The client always has more leverage but certainly, for the high-end work, the firm is calling the shots," Zimmermann said.
He pointed to a report released in April by legal analytics company TyMetrix, which reviewed billing rates at some 4,000 law firms during the past five years. The study found that rates grew three times faster for the highest-billing partners than for the lowest-billing partners. At the same time, rates rose five times faster for the highest-billing associates than for the lowest.
Although more clients are demanding alternative fee arrangements, slow widespread adoption of that billing method means that lawyers can continue to raise hourly rates, said Joel Henning, a consultant to law departments and law firms. There's been much talk from clients and law firms about tailoring legal fees based on flat fees or litigation milestones, but "there's lethargy on both sides," said Henning, principal of Joel Henning & Associates in Chicago.
Only 6 percent of law firms use alternative fee arrangements, according to a survey released in July by ALM Legal Intelligence (ALM owns The National Law Journal). Just 12 percent of legal departments said they use those arrangements for more than half of the work they assigned to outside counsel in 2011.
"They keep talking about how the tide has turned, but I don't think it really has," Henning said.
Not surprisingly, the biggest firms in the biggest markets generally had the highest rates. Several firms that have their largest offices in New York and Washington had median rates above $500, according to the NLJ survey. By contrast, firms based in smaller markets including St. Louis, Denver and Detroit had median rates below $400 per hour. Some of the cities with the highest billing rates, according to TyMetrix, are Boston, Chicago, Houston, Los Angeles, San Francisco, New York and Philadelphia.
Wherever the attorney is based, determining how much he or she can charge is a bit of a group effort, said Silow of Fox Rothschild. Each year, he meets with the firm's chief financial officer and reviews the partners' collection efforts. If they're pulling in the vast majority of what they're charging, it's a sign that those attorneys can boost their rates. If collections are lower, there may be less capacity to increase them, he said.
And in almost every practice area among top law firms, there are attorneys who can consistently bill at high rates and who collect on those numbers, Silow said. "There are lawyers who are just that good," he said.
This article originally appeared in The National Law Journal.