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Partner rates at magic circle firms have spiralled 62 per cent since 2005 with work-hungry top guns charging up to £850 per hour, according to new research.
The findings by costs lawyer Jim Diamond reveal that headline hourly rates for magic circle partners have reached their highest point to date, hitting £850 despite being the worst economic crisis in decades.
Spiralling fees have also trickled down to NQ levels, where rates have bumped up to £350 per hour compared with £250 in 2009 (21 September 2009). This equates to an annual bill of £630,00 for an NQ clocking in 1,800 hours.
Diamond, whose research is conducted during the course of his work as a costs lawyer and legal costs consultant, also claimed that silver circle firms are charging as much as £800 per hour. He commented that the figures were “off the Richter scale” exposing a “shocking” rise in fees over recent years.
However the rise of fixed rates and alternative fee arrangements has led some lawyers to question the relevance of measuring headline rates, given the disparity with the hourly fees firms actually receive after discounts are taken into account.
“One of the factors here is firms taking advantage of the brightening economic outlook and pushing up hourly rates to make up for the increase in discounts and caps,” comments Kingsmead Square director Chris Bull. ”The value of any deals clients have negotiated begins to be eroded compared to the headline discount level, in a similar way to those supermarket discounts where a bottle of wine is bumped up for a couple of weeks before it goes on sale for a ’bargain’ 50 per cent off.”
Firms are continuing to offer discounts of up to 25 per cent, with some turning regularly using fixed-fee deals and bulk contracting as a way of offering cost control to clients.
Eversheds, for example, recently secured a two-year extension on its multi-million pound deal with US industrial conglomerate Tyco (26 April 2013). The deal was first signed in 2006 with an estimated value of £16m (8 January 2007).
“These might be the figures that the magic circle would love to use, but if you work out what they actually get it will be much lower,” another source suggests. "It will only be some of the best partners in very exclusive areas of law who will be able to charge these headline rates with little or no discount.”
Diamond blamed in-house counsel for allowing fees to skyrocket, suggesting that companies talk tough about cutting costs but continue to pay up.
“The explosion of hourly rates can in some ways be blamed on the utter ignorance and arrogance of buyers of legal services,” he said. "I would like to be a fly on the wall when they have to explain to the board why they are paying up to 15 per cent more on rates in two years, whilst others have clearly negotiated in real terms 20/30 per cent discounts over the same period.”
"In 2003 I agreed to provide a telephone advisory service to members of Commerce & Industry. In 12 months that ran, I received not one telephone call. In-house counsel have played lip service to City lawyers rates for over a decade.”
How much? The hourly rate for magic circle partners