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Law firms dropping their hourly rates is an entirely appropriate response to current market conditions. But partner rates in the magic circle firms dropping by a third will take a lot of people by surprise. In private practice, pragmatism has prevailed.
As one magic circle partner remarks: “When the market eventually picks up, it will change back. What comes around, goes around.”
He might be waiting a while. Getting this sort of discount on fee rates is making in-house lawyers look pleasingly tough on costs, and they’re not going to be surrendering their advantage any time soon.
But let’s dig a little deeper than the headline figures (which, by the way, will themselves vary by practice area). The real question is this: why have newly-qualified (NQ) rates stayed so high, at £250 per hour, when partner rates have fallen so steeply? After all, in the quest for value, it is increasingly difficult to argue that an NQ - whatever their potential - can seriously provide something truly beneficial to the client in terms of experience or technical knowledge. The fact is, getting partner rates down from around £700 to as low as £400 represents an eye-catching victory for the in-house counsel, and partner rates have an emotional weight that associate rates do not. It’s notable how in-house lawyers are reporting that they’re getting considerably more partner attention - not surprising, given that those partners have a little more time on their hands.
Yet I’m not sure this is a revolution yet; the five-year PQE rate has held pretty steady at an average of £375 for the magic circle and £250 for those firms outside it. And as any managing partner will tell you, it’s the senior assistants that really generate the bulk of the fee-earning and, indeed, the bulk of the profit.
The hourly rate has created the law firm leverage pyramid, but the emergence of alternative billing will inevitably alter the dynamic. Fixed fees are now widespread, which means there is growing pressure on the way transactions have traditionally been staffed. It will not be beyond the wit of any truly commercial and proactive firm to re-engineer its services accordingly.