Firm Rates Continue to Rise while demand for Attorney Hours Decreases. Huh?

Posted on April 16th, 2014 by Legal Fee Advisors

An Above the Law blog dated March 25, 2014 referenced an American Lawyer article about a new survey focused on billing data that indicates that legal fees are on the rise, even though fewer attorney hours are being purchased.[1]  The survey data, produced by Tymetrics, the billing software company, through its “LegalView Legal Market Index”, is based on the purchases of 70 large corporate clients, differentiating it from typical billing data which is collected from law firm surveys. The index is also fairly comprehensive- the clients range across eight industry groups and employ over 3000 law firms.  

Although fewer hours were purchased from law firms overall, the index shows that the top firms (Am Law 100) took the biggest hit-a cut of approximately 2.8% or 66,617 hours from 2012 to 2013. Meanwhile, the Am Law 200 firms, actually saw a rise in hours by about 3.1%. Perhaps this shift illustrates the financial concerns of many companies today and a growing effort to keep costs down. Large corporations that have significant legal spend are looking beyond the very top tier law firms, and considering those firms with lower hourly rates. However, these companies, still intent on maintaining quality, may be afraid to stray too far from the top, as evidenced by the fact that non-Am law firms (of which there were approximately 3000) also saw a decline in hours, by approximately 1.3%.

The rise in legal fees is explained by the overall rise in hourly rates across all three categories of firms, with the greatest rise attributable to Am 100 firms- 2.5% from year to year. Which begs the question- are top firms raising rates in response to lower demand? Or is demand lower due to rising rates? Though the answer is most likely a combination of both, upper tier firms are being forced to confront a changing legal marketplace where corporations are considering other options, and have access to greater transparency. This trend is only likely to continue, with smaller, non-Am firms grabbing more corporate business.

Perhaps, instead of increasing rates, these elite firms should focus on increasing efficiency and transparency, in an effort to sustain profits and keep their clients satisfied. Clearly, simply charging more may not benefit them in the long run.

E. Bibelnieks