RESEARCH: partners 'complacent' as clients attack 'unsustainable' increases


Law firms are facing mounting ?pressure from clients to lower their fee levels, new research has revealed.



A report commissioned by national firm Eversheds found that clients considered the current growth in fee rates to be 'unsustainable'.



The survey follows calls by FTSE general counsel last week for firms to slash the 'staggering' rates charged for junior staff (see [2008] Gazette, 21 February, 3).



The Eversheds study, which was based on interviews with general counsel and legal directors at 50 leading companies as well as 50 partners at the top 25 firms, found that clients are under increasing pressure to reduce their legal spend. In-house lawyers said controlling costs and obtaining value for money were the biggest challenges they faced.



One client commented: 'Everybody is focusing on cost-cutting. It seems as though fees at major firms are inevitably rising to ridiculous levels. I don't understand how they can get away with it for much longer'.



However, the research showed a degree of complacency on the issue by law firm partners, with only 21% saying that providing better value for money and justifying their costs would be a major challenge in the future.



Tony Williams, management consultant at Jomati and former Clifford Chance managing partner, said: 'There is a frustration among general counsel that rates have been going up 5% year on year, when corporates have done a lot to control their costs without passing them on to their customers. They think firms should be getting their act together rather than expecting clients to pick up the tab.'



He added: 'There is particular concern at the junior level, where clients are paying up to £200 an hour for people who do not add very much'.



Martyn Rodmell, chairman of the Commerce & Industry Group, said in-house colleagues had told him legal fees will need to be 'reined in' to enable them to stay within their budgets.



General counsel are also likely to begin insisting on alternatives to hourly rates, the report revealed. One-third of clients surveyed said they 'hated' hourly rates, preferring the certainty of fixed fees. Some 83% of partners thought hourly rates would still be used in ten years' time, however.



The survey suggested that large clients are beginning to turn away from 'magic circle' firms in a bid to achieve value for money, with more than a third of respondents saying they planned to do so.



Last week, in-house counsel at Barclays, Legal & General and Northern Foods told the Gazette they intended to reduce legal spend and bring more work in-house.



Rachel Rothwell