Magic circle hourly rates drop by third as clients flex muscles
Annual fee rates survey shows work-hungry top guns drop fees to £450 as they raid mid-market for business
Mark Dawkins
Magic circle partner rates have fallen to levels not seen in more than a decade as top firms muscle in on mid-market territory.
The annual hourly rates survey, carried out by costs lawyer Jim Diamond, reveals that the recession has forced the UK’s largest firms to slash their prices and target less lucrative instructions.
In the last 12 months average magic circle partner rates have dropped by a third, from £680 an hour to £450.
Freshfields Bruckhaus Deringer London corporate head Mark Rawlinson said: “It is a pretty varied picture at the moment. Clients are understandably
looking to reduce their legal costs, but fees still vary depending on how important the work is.
“Some of the clients we’re working with are looking for more price certainty and alternative pricing strategies. Where clients want hourly rates as the charging basis, there’s a trend towards continued discounting, mainly as a result of the the supply side currently exceeding demand. ’
Before the economic crisis, legal costs had been rising steadily for years, leading to criticism from in-house lawyers that they had reached an unsustainable level.
It is now possible for large clients to secure the services of a magic circle partner for less than £400 an hour.
Simmons & Simmons managing partner Mark Dawkins said: “In a recession, the leading firms wake up to the fact that they need to keep their previous market share and keep their high number of lawyers busy. They start lowballing or doing some pretty cut-throat pricing.”
The recession has narrowed the gap between the magic circle and the rest of the market, where price cuts have been less pronounced.
Partner rates at London firms fell by 15 per cent during the last year to £375, while the average hourly charge for a partner at a national firm is now £325.
Diamond said: “Gone are the days when a mid-rank firm can justify its rates on the basis that the magic circle’s are 50 per cent more.”
In spite of heavy discounts for most types of work, headline rates for the most high-profile instructions have continued to soar. It is understood that top insolvency partners can earn up to £900 an hour.
A magic circle partner said: “It would be wrong to say there’s a bloodbath on fees across the board. The strategic or distressed transactions are less sensitive in terms of rates.”
In spite of the rising popularity of alternative billing arrangements, such as fixed fees, hourly charges remain the most common billing method for UK companies.
The survey also found that although partner rates have declined, firms have not offered similar reductions for newly-qualified (NQ) and associate lawyers.
Magic circle NQ rates have remained steady at around £250 an hour for the last three years, while the figure for NQs at US firms in London actually increased during the same period from £220 to £225 an hour.
A senior in-house lawyer at a FTSE-listed company said he was often forced to challenge firms on the cost of junior lawyers, adding: “It’s ridiculous to be paying NQs a third of what you’re paying a good corporate partner.”
The annual rates survey provides benchmark figures that include discounts and reflects the fact that fees vary depending on the client and the type of work.
Additional reporting by The Lawyer staff.
Readers' comments (10)
Anonymous | 21-Sep-2009 5:25 pm
When one talks of hourly rates discounted down to "only" some £400 an hour i am reminded of a sale in a ( maybe ) cutting edge designer shop when the 40% reduced label still leaves you reeling for a stiff drink because the original price was so extortionate. What must Joe Public think? What must the local Conveyancing solicitor think? No wonder city lawyers only have Bankers and Estate Agents to talk to in the kitchen at parties ( mind you the conversation still starts off the same as it did years ago ..." Do you know how much my house is worth according to our neighbours ?").
How are the fees justified other than in the most specialist areas and everyone knows, at the lower level of qualification , it is even worse. Paying over £200 an hour to have a NQ learn " on the job" ( so to speak ) at the client's expense ( literally ) and have his or her work checked by a partner - who also charges the client if they can - is obscene. How long can it go on? . In the meantime lawyers who earn 35% plus profit margins on normal charge out rates in the City can afford to buy in some work and keep their staff busy and it would be amazing if they did not do so. The real story though is the embarassing greed that seeks to jusify " rack" rates in the first place. it is not the real world. Thank goodness.
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Anonymous | 21-Sep-2009 6:01 pm
Its supply and demand. There is less work so amount you can charge goes down. If the top lawyers are in demand they can charge a premium. Its no different to any other market, there are plenty of buyers and sellers and far as i am aware there is no cartel operating to artificially regulate prices.
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Anonymous | 21-Sep-2009 8:19 pm
This will have a knock-on effect. The silver circle firms will have to try and take work from those below them in the food chain. And somewhere further down the line, firms will start going under.
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Anonymous | 22-Sep-2009 0:51 am
As an associate at Slaughters who has worked at other firms, I can tell you their value-based billing is fantastic. Not having a billable hours target and not having to deal with any billing queries or having to justify time spent on a matter really frees you up to do your best work.
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Carl Pressley | 22-Sep-2009 8:33 am
Yes of course it is supply and demand. I am a consultant to the legal sector and when we are busy I obviously don't need to offer a discount. Mind you, you get my 15 years of experience for approximately the same as a newly qualified lawyer!!
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michael levy | 22-Sep-2009 1:32 pm
I get £45 ph from legal aid for defending murderers,rapists, and fat cat fraudulent lawyers.
One mistake by me could result in imprisonment for life and/or confiscation of all the clients assets.
What is worse Is that under BVT I will be expected to bid for a contract to be able to represent clients at police stations including late nights and weekends and word has it some firms will be bidding to do this work for FREE in the hope that they will get a court case out or two out of it. The poor client will not be able to choose his own solicitor to represent him.
What price justice
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Anonymous | 22-Sep-2009 4:03 pm
Cant see many firms going under to be honest. one or two. he others will merge or be bought.
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Anonymous | 23-Sep-2009 0:33 am
To the associate at Slaughters, I thought your firm's profit margins were around 50%? If so, then either you or the client (most probably both) are paying a heavy price in some way. This is not a criticism - true value is about what clients are happy to pay for the service delivered and you seem happy enough. But I don't think many other firms (if any in the UK) could operate the same model.
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Anonymous | 23-Sep-2009 11:30 am
What s Pinsents model like?
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michael | 23-Sep-2009 2:11 pm
You also need to factor in the fall of sterling as well. For example it has fallen over 20% against the Aussie and Kiwi dollars. In Aussie dollar terms the third drop in charge-out rate is actually one half. Over the past year the pound has fallen against most other currencies as well. The depreciation of the pound makes Britain's exports more competitive but it does so by making all Britons poorer - they just haven't felt it yet.
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