It seems that the financial malaise that set in around August 2007 has done little to curb the costs of retaining a “magic circle” law firm. As recently reported by the Times Newspaper, partners at these firms are now charging up to £850 per hour for their services. This represents a 62 per cent increase since 2005. Firms which are often placed in the next tier (referred to as the “silver circle”), are not far behind, reportedly charging as much as £800 per hour.
On the one hand, you could say that this level of charge rate is unlikely to bother many of the blue chip companies that retain these firms. On the other, what does it say about the state of the UK legal services industry, that the average hourly rate of a criminal barrister, at £40 per hour, is around twenty times lower?
Advocates of fair market value principles may reply that these rates must reflect what a knowledgeable, willing and unpressured buyer of legal services is prepared to pay. In answer, alarmists may ask why, when reducing costs is surely on the agenda of board meetings throughout the City, legal spends seemingly remain on an inexorable rise?
Before reaching any conclusion there are, in our view, a couple of points to bear in mind:
- There is a growing trend for companies to agree fixed fees with their clients for certain items of work, rather than simply calculating costs by reference to the number of billable hours. In these circumstances, setting an agreed figure allows clients to keep costs in check, and satisfy themselves that the fee being charged is reasonable and proportionate to the work being done. So the agreed figure for, say, the handling of particular transaction, may not equate to a simple “X hours at rate Y”.
- Discounting hourly rates has always happened, but is reportedly becoming more and more commonplace. When a law firm sets exorbitantly high hourly rates of the order discussed above, they are alive to the fact that, in most cases, their “real” rate of recovery will be lower than their headline rates would suggest. There could also be a touch of the “keeping up with Joneses” setting in among certain competing firms, who are playing to a gallery that, in some quarters, associates price with quality. As we know, this maxim doesn’t always hold true.
As you will have gathered, our view is that the situation is more finely nuanced than some reports might suggest.
In any case at Bargate Murray, we like to think that as a lean and adaptable City firm, we offer our clients a world class service at costs which are significantly below those charged by our larger competitors. This is borne out by the reputation we enjoy with our clients for being flexible with costs and good value for money.
To discuss ways in which we can help your business handle its legal spend, please contact Quentin Bargate or Adam Ramlugon on the following email addresses: