Hartford, Conn., Sept. 9, 2014 — Amidst a continually evolving and competitive post-recession legal environment, corporate law departments are gaining the upper hand in negotiating costs with law firms. According to the 2014 Real Rate Report®, this shift is being driven by the gradual flattening of rate increases. Analyzing more than $16 billion in actual law firm invoices from 2007-2013, the report found that lawyer rates increased by only 3.7 percent in 2013, down from 7 percent just before the recession.
The 2014 Real Rate Report was jointly released by Datacert | TyMetrix, the global leader in Enterprise Legal Management software and services, and CEB, the leading member-based advisory company. It is the legal industry’s leading publication that analyzes actual invoice data to provide benchmarks of law firm rates and explain what is driving the billable hour.
“This year’s findings demonstrate the growing power in the hands of legal departments to demand more affordable pricing alternatives for their legal work; this is knowledge that is crucial for legal professionals to make smarter business decisions,” said Craig Raeburn, Vice President, Legal Analytics, Datacert | TyMetrix. “The 2014 Real Rate Report provides an in-depth view into industry trends around specific matters by analyzing real invoice data from what is unquestionably the most comprehensive legal dataset in the world, Datacert | TyMetrix’s LegalVIEW® data warehouse.”
Findings from the 2014 Real Rate Report reveal four other emerging themes that legal departments should bear in mind:
- First-year associates are being used for less. Corporate legal departments are willing to pay a premium for higher quality work with less time spent, meaning that first-year associates are being used less frequently. This was evidenced by a 60 percent drop in the ratio of hours billed by first-year associates in the past five years.
- Law firm size has the largest impact on hourly rates. New to the Real Rate Report this year was an expanded analysis of more than 350 factors driving rates. Of all these factors, the size of the law firm was the most influential on rates, regardless of geography or the type of work performed. Location also influenced rates, and the range of rates varied the most in places like New York and Washington, D.C. As a result, corporate law departments have more negotiating power to shop around for the best rates in these locations.
- Rates in some practice areas are more prone to negotiation. Through an analysis that is unique to the 2014 Real Rate Report in its level of granularity, it was found that certain matters, such as corporate, mergers and acquisitions, and regulatory/compliance, had a larger range of rates for partners and associates. In some cases, rates for similar lawyers in the same practice area differed by more than $240/hour, indicating a significant opportunity for more rate negotiation and cost savings in these practice areas.
- Staffing and length of a matter drastically affect total matter costs. Increasing time that partners spend on larger matters by 5 percent can increase matter costs by as much as 10 percent. This is causing some law firms to rethink their staffing models, with larger firms using more associates than partners to staff larger matters. On top of this, junior associates were more likely to bill on matters when coupled with a tenured or senior associate, showing that there is less opportunity for junior associates to handle these matters on their own, and thus indicating a prolonged learning curve for them.
“The 2014 Real Rate Report helps legal departments identify (and more importantly, size) cost-savings opportunities when working with different law firms, and provides a roadmap of what areas to target first,” said Brian Lee, managing director, CEB. “For example, our research indicates that the premium placed on law firm size is larger now than ever before. Understanding this allows legal departments to weigh the true benefits of the firms they use, and gives them an incredible opportunity to reassess where they send their legal work.”
Among the new analyses included in this year’s report are:
- More granular practice areas. While previous versions of the Real Rate Report evaluated nine key practice areas, in 2014 the report focuses on a set of 66 broad practice areas that had the largest amount of billing data available. This includes matters for non-litigation tax and ERISA litigation that were previously included in the report as part of general litigation work.
- More detailed comparisons by lawyer experience levels. This year there are more direct comparisons of entry-level associates, mid-level associates, and senior associates with partners, thus giving more detail on experience.
- Analyses in rate volatility. New this year are analyses of the difference in lawyer rates for work at law firms of similar sizes in different geographies, practice areas with the highest volatility for like timekeepers, and opportunities to negotiate better rates.
- Updated model for lawyer rates. This new model accounts for new factors, including more than 20 U.S. cities, litigation and non-litigation practice areas, and client industry.
- In-depth analysis on matter staffing. How corporate legal departments and law firms should consider length of matters and the mix of resources that bill on each matter to have the greatest control over the matter costs.
The 2014 Real Rate Report analyzes more than $16 billion of the $55 billion in legal spend data found in Datacert | TyMetrix’s LegalVIEW data warehouse. This data is derived from corporations’ and law firms’ e-billing and time management solutions, from 2007-2013. It comprises fees paid by 90 companies to more than 5,600 law firms and more than 206,000 timekeepers, and it covers approximately 141,000 partners and associates across more than 350 U.S. metro areas and 15 International locations. The analysis for the 2014 Real Rate Report was conducted by both CEB and Datacert | TyMetrix.
For more information or to order the 2014 Real Rate Report, please visit http://wvw.tymetrix.com. A complimentary copy of the report is available to members of CEB Legal Leadership Council, as well as to companies and law firms that voluntarily contribute data to LegalVIEW.