January 14, 2013
This article was posted on the Hildebrandt Institute blog on January 10, 2013 by Kandy Hopkins.
The top firms continue to charge the highest rates, bill the most hours and otherwise control the billing conversation—though a rise in alternative fee arrangements (AFAs) and the need for improved practice efficiency is likely, or so say several surveys.
Rates are on the rise. A survey from The National Law Journal (NLJ) (registration required) found that median partner rates were up 4.5 percent from 2011 to $517 an hour in 2012, and the median associate rate rose 3.5 percent to $323, with hourly rates ranging from $130 to $1,285 and a median hourly rate of $432. This gibes with the findings of the Major Lindsey & Africa (MLA) “Partner Compensation Survey 2012,” which recorded an hourly rate range from $115 to $1,265 and an average partner billing rate of $584 (up from $555 in 2010).
Billable hours also increased, but non-billable hours decreased, according to the MLA survey. The average billable hours were up from 1,657 hours in 2010 to 1,687 hours last year. Yet non-billable time decreased in 2012 to 530 hours, down from 563 in 2010. The MLA survey notes that the increase in billable hours plus the decrease in non-billed time meant that the total number of hours worked remained about the same (2,220 hours in 2010 vs. 2,217 hours in 2012).
Both surveys found that the largest law firms remained able to not only bill for the most hours, but also at the highest rates. “Generally speaking,” the MLA survey states, “the larger the firm, the higher the billing rate, and the higher the number of billable and non-billable hours.” In fact, an article about the NLJ surveysuggests that law firms may inflate their rates in order to create “haggle room” with clients who are less and less shy about asking for discounts and AFAs. Yet an Altman Weil survey indicates that the use of alternative fee arrangements remains reactive and less profitable, with only 14 percent of surveyed firmssaying that their non-hourly projects bring in more money than their hourly projects.
The Altman Weil “Law Firms in Transition 2012” survey also revealed that “strong majorities of law firm leaders believe the practice of law will be permanently characterized by pricing pressures, further commoditization of legal work, new forms of competition and, thus, a need for improved practice efficiency.” Since the first transitions survey in 2009, there have been significant changes in “how law firm leaders view the competitive environment and the appropriate organizational responses.” The top issues leaders now deem to be a permanent trend are: more price competition (92 percent now vs. 42 percent in 2009), more commoditized legal work (84 percent vs. 26 percent) and more non-hourly billing (80 percent vs. 28 percent).
In fact, many of the survey’s findings were of the “good news/bad news” variety, including:
-For most firms, revenue was up—but so were expenses—and they believe that the pace of profit increases will be slower from now on.
-Even though firms have raised their rates, many do not expect to realize the full increase.
-And while law firm leaders have moderate-to-high confidence in their own abilities to navigate the changed market, they are less sure that their partners are paying adequate attention.