City law firms to lose out to regions

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Regional law firms look set to benefit at the expense of their City rivals in the coming year, research seen by the Gazette has indicated.

A survey by research agency Acritas of 500 senior in-house counsel at large and mid-sized organisations showed that 29% were planning to increase their spend with regional firms.

However, many said they were planning to cut back spend on City firms. Spending at magic circle firms will fall by 21%, according to the research, while City firms in general will see a 19% drop. National firms will see a smaller decrease of 3%.

Some 38% of in-house lawyers said they expected their legal spend to fall in the coming year, while 24% were likely to increase it. Nearly a third thought it would remain static. Over the last 12 months, half said that they increased spending on external firms, while a fifth said they spent less.

Innovative pricing or fee structuring by panel firms were seen by in-house counsel as less important than a firm’s response time and the closeness of the relationship with a firm. However, 81% of in-house lawyers said that they would increase their use of fixed fees this year, and 79% said that they would be looking to negotiate discounts on hourly rates.

Simon Young, a management consultant for small and medium-sized law firms, said: ‘Regional firms have been saying for years that they can do London-quality work for less than London prices. But until now, clients haven’t had as much pressure on their cost bases.’ He predicted that ‘sizeable’ regional firms just outside major cities would benefit most.

William Arthur, partner at management consultants Kerma Partners, said: ‘Many of the regional and national firms are populated with high-quality lawyers, some of whom decided to leave big firms in London and brought with them a strong client following and a great reputation. However, for certain types of work, most [in-house counsel] will still go to the big-name City firms.’

Over the next two years, in-house lawyers anticipate greater pressure on their legal budgets, more fee competition between law firms, declining hourly billing rates and more law firm consolidation. However, a fifth of in-house lawyers who outsourced legal work to developing countries were unhappy with the experience.

The research was based on interviews conducted by Acritas with 500 senior legal buyers in organisations with turnovers above £25m, between March and August 2009.