Legal News

2010?s Battle Royale: Clients v. Firms

By Ashby Jones

Once upon a time, the dynamic between firms and clients on billing rates went like this: Each year, the firms would announce an across the board billing hike of about 5%. The clients — aka, the Fortune 1000 companies — would grumble and, then, begrudgingly agree to pay.

Over the past decade or so, things have changed a bit, but the shot-calling ability has still mostly resided with the firms.

Until now.

For those who are into the topic of law-firm economics, we suggest you take a look at Zach Lowe’s piece today over at the American Lawyer. The thrust of Lowe’s piece is this: law firms, which have spent the last year getting beaten up like never before, are planning to raise billable rates in ‘10. Clients, meanwhile, many of whom have also struggled through a lackluster ‘09, are at last playing hard ball. In other words, conflict looms.

Lowe writes:

Last month, Susan Blount, the general counsel of Prudential Financial, sent a letter to the 60 law firms the insurance giant uses regularly. The letter addressed the general economy and the need to cut costs, but one announcement stuck out: Prudential informed the firms that in calendar year 2010, the company expected to pay for legal services at 2008 hourly rates. It wasn’t a request as much as a take it or leave it deal, Blount says.

“The response,” Blount says, “has run the gamut, from acceptance to disgruntled acceptance to firms saying, ‘You just don’t understand!’”

Blount isn’t alone in her attitude. GCs and chief legal officers around the country are just saying no to rate hikes. Only thing, writes Lowe:

An Altman Weil survey indicat[es] that law firms, on average, are projecting an increase in 2010 hourly rates of about 4.1 percent, with the largest U.S. firms (those with 500 or more lawyers) expecting an even (slightly) higher increase.

But the firms might not back down easily. The Altman survey (which drew responses from 288 firms, including 45 percent of the firms in the “NLJ 250″) includes some anonymous respondent comments indicating that firm leaders expect the billable increase fight to be tough. Said one: “Firms need to push back on the clients’ unreasonable demands to hold rates at 2008 levels and give a 15 percent discount off of those rates.”

Blount says in the wake of her letter, she’s been receiving responses from firms explaining why the proposed cuts shouldn’t apply to them. “They are detailing why they are special,” she says. But she is ready to defend the cuts.

It could make for an intriguing battle heading into early 2010. Who’s likely to win? “I think the corporations are going to prevail,” says Altman Weil’s Ward Bower.

In our opinion, the companies should win. After all, they control the purse strings, not the firms. Then again, the companies have always controlled the purse strings, yet have largely (and strangely) played whipping boy to the firms. So we’ll see.

Photo: iStockPhoto

Full post as published by Law Blog - WSJ.com on December 03, 2009 (boomark / email).