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Ready for the $1,000+ an Hour Partner?

Vivia Chen

April 10, 2013

Cash in Hand © Sehenswerk - Fotolia.comYou know that old saying: "Only WASPs pay retail"? That used to describe the legal world too. There was a time when blue-chip clients scrutinized the bills of their outside counsel about as much as their country club dues.

Sadly, those good old days are gone. Now, even the WASPs have wised up (or have they just faded away?). Everybody, it seems, is looking for a deal—and it's no longer taboo to ask.

But first, let's give Big Law some reassuring news: Hourly rates are alive and well. In fact, they are skyrocketing. The Wall Street Journal's law blog reports that increasingly numbers of partners are joining the $1,000+ an hour billing club:

The number of partners billing $1,150-plus an hour has more than doubled since this time last year, according to Valeo Partners, a consulting firm that maintains a database of legal rates pulled from court filings and other publicly disclosed information. More than 320 lawyers in the firm's database billed at that level in the first quarter of 2013, up from 158 a year earlier.

Sure, some lawyers crossed that $1,000 an hour rate years ago (Ted Olson bills  $1,800/hour). But it's not just individual superstars who are jacking up the rates. The WSJ reports that, according to findings by Valeo Partners, "the 50 top-grossing U.S. law firms boosted their partner rates by as much as 5.7 percent, billing on average between $879 and $882 an hour."

That's a lot of moola. So lawyers are raking it in, right? Well, not exactly. Truth is, despite rising hourly rates, clients are aggressively bargaining for price cuts, and firms are caving. Reports the WSJ:

For the bread-and-butter work that many big law firms rely on, haggling has become the norm. Many clients grew accustomed to pushing back on price during the recession and continue to demand discounts.

Some companies insist on budgets for their legal work. If a firm billing by the hour exceeds a set cap, lawyers may have to write off some of that time.

Other clients refuse to work with firms who don't discount, lopping anywhere from 10 percent to 30 percent off their standard rates.

Clients essentially treat Big Law like used car operations. Altman Weil Inc.'s Ward Bower tells the WSJ that clients regard the stated rates of law firms as "the equivalent of a sticker on the car at a dealership." He adds:

It's the beginning of a negotiation. . . . Law firms think they are setting the rates, but clients are the ones determining what they're going to pay.

The result is that "firms on average are actually collecting fewer cents on the dollar, compared with their standard, or 'rack,' rates, than they have in years," reports the WSJ. "Firms that used to collect on average about 92 cents for every dollar of standard time their lawyers worked in 2007, before the economic downturn, now are getting less than 85 cents."

So firms are jacking up their rates, while clients are bargaining them down. Why play charade? Well, maybe law firm partners feel better about themselves if they think their work is worth some ridiculous amount of money. And maybe clients are equally giddy that they're getting a huge discount. So we're all getting what we deserve.

Do you have topics you'd like to discuss or tips to share? Email chief blogger Vivia Chen at vchen@alm.com. 

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Comments

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Law firms need to re-evaluate their economic structure and create one that works for clients and associates. I imagine they have these high rates so that clients can negotiate and feel like they "got a good deal". It reminds me of shopping at the Silk Market in Beijing...

My firm (which is one of the top 50s) still makes a profit after 20% discount of regular hourly rate. At 35% discount, they come out about even. So they are really jacking up their rates....

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About The Careerist

The Careerist takes an inside look at how lawyers shape their careers and manage their lives. The blog aims to dissect developments in the profession, provide useful information and advice, and give lawyers a platform to voice their views. The goal is to provide a fresh, provocative take on the state of lawyering.

About Vivia Chen

Vivia Chen

Vivia Chen, The Careerist's chief blogger, has been covering the business and culture of law firms for a decade. A former corporate lawyer, Chen is fascinated by those who thrive (as well as those who don't) in the legal profession. Her take: Success in the law (and life) doesn't always travel a linear path. If you have topics you'd like to discuss or information to share, contact her: VChen@alm.com

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