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Sunday, November 25, 2007
It's Safe to Raise Rates by 5-6 Percent for Corporate Clients
Law firm hourly rates have been going up since 2006 and the time to raise fees is now, according to data in a new survey of in-house lawyers. The survey reveals that it is safe for law firms to increase their rates by 5.3% up to 6% on hourly rates for their corporate clients.
The survey is full of good news for law firms. It was conducted by the Association of Corporate Counsel and Serengeti Law, the #1 ranked system for matter management and e-billing, based in Bellevue, WA. Named the "2007 ACC/Serengeti Managing Outside Counsel Survey Report," it was the biggest survey of its kind with responses from 263 corporate law departments.
In-house corporate counsel are expecting a rate increase of 5.3% on average:
"For 2006, the average change in outside counsel hourly rates was an increase of 6.0%, higher than last year's increase of 5.2% (compared with increases of 5.7% in 2004, 5.0% in 2003, 5.4% in 2002 and 6.3% in 2001). The percentage increases in hourly rates have headed back up to levels higher than the past five years. As in past years, in-house counsel were unrealistically optimistic about their ability to keep a lid on increases in hourly rates, with the actual increase (6.0%) exceeding last year's prediction (4.8%). The average hourly rate increase predicted for 2007 (5.3%) is higher than last year's prediction (4.8%), but lower than this past year's actual increase (6.0%)."
The balance of fee-setting power favors law firms:
In the past, in-house counsel were having some success in keeping the hourly rate increases in check. "However, during the past three years this trend has reversed, with higher rates of increase in hourly rates. In addition, in-house counsel project an even greater increase in hourly rates during the coming year than they projected last year. Since in-house counsel have consistently underestimated such increases, it is likely that the rate of increase will be even higher next year."
"This new development may be indicative of a shift in the balance of bargaining power between in-house counsel who need high quality legal work and their outside counsel who provide it." Most (83%) in-house law departments are tiny, with 10 or fewer lawyers, and they generally use home grown paper and manual systems to collect information on legal spending. Many also admit that their systems lack basic safeguards, such as verification of data entered and spreadsheet formulas, and maintenance of an audit trail.
Additional findings were good news for law firms:
Predominance of hourly rates. An increasing percentage of in-house counsel - 95% -- are sticking with standard hourly rates for a majority of their outside legal work. Nearly half of the in-house lawyers said they do not use alternative fee arrangements,
Little client oversight. 75% of in-house counsel do not actively or systematically mange outside counsel, beyond requiring budgets for litigation or requiring that associates have at least 5 years of experience.
Convergence is going away. 75% of law firms do not use "convergence," which is reducing the number of law firms with which a company works on a regular basis. "Convergence does not appear to be gaining momentum," the survey found, because the tactic doesn't meet expectations. The tactic is used primarily with large corporations.
Cutting fees is not the top client priority. The most pressing issue facing in-house counsel is keeping track of company activities that might have legal implications. They are preoccupied with Sarbanes-Oxley and high profile trials of corporate executives and in-house counsel. These issues are making "in-house counsel more likely to bring in outside help, and less sensitive to higher hourly rates."
Few corporate RFPs. 76% did not issue a Request for Proposals during the past year. "One reason that this practice has not gained momentum may be the historical low rate of law firm responses to RFPs. In past years the response rate was about two responses for each RFP."
Spending on law firms is up. "The overall median percentage of outside legal spending compared to company revenues was higher than last year. This year, on average companies devoted .38% of their worldwide revenues to outside legal spending."
Marketing advice
There is a great deal of turnover among law firms working for corporate clients. About half of in-house counsel now state that they have terminated relationships with some of their outside counsel during the prior year, creating openings for new law firms to get their work. Specific reasons for termination include failing to perform according to client expectations, costs that were too high, poor work product or results, poor communication and personality issues.
This means that law firms with corporate clients should redouble efforts to keep them. "An important message for law firms is that they should consider redirecting at least part of the time and money that they are spending on new client marketing, to assess and address existing client concerns."
About the survey
Seven years ago, Serengeti Law began surveying members of ACC every year. A record number of 263 law departments responded this year, representing companies in manufacturing, health care, banking/securities/financial services, consumer products retail, and software/internet. Respondents who are general counsel constitute 62%of the respondents, and "assistant general counsel/staff attorney" constitute 11%.
For purposes of the survey, company size is defined as follows based upon annual worldwide revenues for 2006:
"Small" companies with $100 million or less.
"Medium" companies with more than $100 million through $1 billion.
"Large" companies with greater than $1 billion.
Using these definitions, the breakdown of respondents by company size is: "small" companies-28.4%; "medium" companies-38.4%; and "large" companies-33.2%.
Small companies have a median of 4 law firms, medium companies have 8 firms, and large companies have 15 firms. Median outside counsel spending varied significantly, with small companies at $300,000, medium companies at $1.18 million, and large companies at $3 million.
The survey is full of good news for law firms. It was conducted by the Association of Corporate Counsel and Serengeti Law, the #1 ranked system for matter management and e-billing, based in Bellevue, WA. Named the "2007 ACC/Serengeti Managing Outside Counsel Survey Report," it was the biggest survey of its kind with responses from 263 corporate law departments.
In-house corporate counsel are expecting a rate increase of 5.3% on average:
"For 2006, the average change in outside counsel hourly rates was an increase of 6.0%, higher than last year's increase of 5.2% (compared with increases of 5.7% in 2004, 5.0% in 2003, 5.4% in 2002 and 6.3% in 2001). The percentage increases in hourly rates have headed back up to levels higher than the past five years. As in past years, in-house counsel were unrealistically optimistic about their ability to keep a lid on increases in hourly rates, with the actual increase (6.0%) exceeding last year's prediction (4.8%). The average hourly rate increase predicted for 2007 (5.3%) is higher than last year's prediction (4.8%), but lower than this past year's actual increase (6.0%)."
The balance of fee-setting power favors law firms:
In the past, in-house counsel were having some success in keeping the hourly rate increases in check. "However, during the past three years this trend has reversed, with higher rates of increase in hourly rates. In addition, in-house counsel project an even greater increase in hourly rates during the coming year than they projected last year. Since in-house counsel have consistently underestimated such increases, it is likely that the rate of increase will be even higher next year."
"This new development may be indicative of a shift in the balance of bargaining power between in-house counsel who need high quality legal work and their outside counsel who provide it." Most (83%) in-house law departments are tiny, with 10 or fewer lawyers, and they generally use home grown paper and manual systems to collect information on legal spending. Many also admit that their systems lack basic safeguards, such as verification of data entered and spreadsheet formulas, and maintenance of an audit trail.
Additional findings were good news for law firms:
Predominance of hourly rates. An increasing percentage of in-house counsel - 95% -- are sticking with standard hourly rates for a majority of their outside legal work. Nearly half of the in-house lawyers said they do not use alternative fee arrangements,
Little client oversight. 75% of in-house counsel do not actively or systematically mange outside counsel, beyond requiring budgets for litigation or requiring that associates have at least 5 years of experience.
Convergence is going away. 75% of law firms do not use "convergence," which is reducing the number of law firms with which a company works on a regular basis. "Convergence does not appear to be gaining momentum," the survey found, because the tactic doesn't meet expectations. The tactic is used primarily with large corporations.
Cutting fees is not the top client priority. The most pressing issue facing in-house counsel is keeping track of company activities that might have legal implications. They are preoccupied with Sarbanes-Oxley and high profile trials of corporate executives and in-house counsel. These issues are making "in-house counsel more likely to bring in outside help, and less sensitive to higher hourly rates."
Few corporate RFPs. 76% did not issue a Request for Proposals during the past year. "One reason that this practice has not gained momentum may be the historical low rate of law firm responses to RFPs. In past years the response rate was about two responses for each RFP."
Spending on law firms is up. "The overall median percentage of outside legal spending compared to company revenues was higher than last year. This year, on average companies devoted .38% of their worldwide revenues to outside legal spending."
Marketing advice
There is a great deal of turnover among law firms working for corporate clients. About half of in-house counsel now state that they have terminated relationships with some of their outside counsel during the prior year, creating openings for new law firms to get their work. Specific reasons for termination include failing to perform according to client expectations, costs that were too high, poor work product or results, poor communication and personality issues.
This means that law firms with corporate clients should redouble efforts to keep them. "An important message for law firms is that they should consider redirecting at least part of the time and money that they are spending on new client marketing, to assess and address existing client concerns."
About the survey
Seven years ago, Serengeti Law began surveying members of ACC every year. A record number of 263 law departments responded this year, representing companies in manufacturing, health care, banking/securities/financial services, consumer products retail, and software/internet. Respondents who are general counsel constitute 62%of the respondents, and "assistant general counsel/staff attorney" constitute 11%.
For purposes of the survey, company size is defined as follows based upon annual worldwide revenues for 2006:
"Small" companies with $100 million or less.
"Medium" companies with more than $100 million through $1 billion.
"Large" companies with greater than $1 billion.
Using these definitions, the breakdown of respondents by company size is: "small" companies-28.4%; "medium" companies-38.4%; and "large" companies-33.2%.
Small companies have a median of 4 law firms, medium companies have 8 firms, and large companies have 15 firms. Median outside counsel spending varied significantly, with small companies at $300,000, medium companies at $1.18 million, and large companies at $3 million.
# posted by gopi @ 8:20 PM 
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