I write regarding the report that was the basis for the Gazette article ‘Costs expert slams £1,000 hourly rates at top commercial firms’. Its thrust is that top City firms face little competition and charge too much. This is causing fee inflation throughout the system, and restricting access for buyers.
It is ironic that the Centre for Policy Studies, a thinktank that advocates free-market economics, publishes a report criticising firms for operating effectively and profitably as commercial enterprises.
There are over 10,000 law firms in the UK, from sole practitioners to magic circle firms, representing the full panoply of services in terms of price, size, expertise and so on. The work of magic circle and top-end firms tends to be complex, specialised, high-stakes, resource-intensive and protracted. These firms comprise a minority of the profession and operate in a separate market.
Law firms can charge whatever fees they wish and it is up to buyers whether or not to pay those fees. Firms will set fees at a level the market deems acceptable.
Firms outside the City would no doubt love to be able to tell their clients that, because a handful of partners in London have headline hourly rates of £1,000, their own rates are rising. It is fanciful and flies in the face of traditional economics and commercial reality.
There is plenty of competition and extensive choice for buyers. Since 2008, supply has, for most legal services, exceeded demand.
As for the billable-hour debate, this is as ubiquitous as it is boring – and more importantly, a sideshow. Firms of all sizes are working to improve pricing sophistication, innovation, flexibility and alignment with clients’ interests. They are also striving to address clients’ needs for budgetary certainty and transparency.
A great frustration of many firms is that, when presented with alternative pricing structures, clients will often revert, by preference, to hourly billing. It takes two to tango; clients cannot be forced to accept alternative arrangements.
Richard Burcher, Validatum, London EC4