India Business Law Journal’s 2017 billing rates survey finds that hourly rates fall across the board as lawyers face cut-throat competition, undercutting and high demand for alternative fee structures. Vandana Chatlani reports
含羞草社区 corporate legal sphere is spinning fast, racing to keep up with regulatory rhythms and legal labyrinths. The competition has never been stiffer with law firms of all shapes and sizes expanding operations, promoting specializations and getting to grips with technology to streamline their offerings. For general counsel, there has never been more choice, particularly as both veterans and young hungry lawyers leave established firms to go solo. With minimal overheads, these practitioners can offer quality advice at a fraction of the cost. But with competition so fierce, and a burning desire to seize prestigious mandates, even the largest firms are willing to drop their prices considerably.
“There is increased competition and major undercutting of fees,” says Prem Rajani, the managing partner at Rajani Associates. “Even when clients agree to a fee or sign mandate letters, it takes a while for them to release the payment.”
As general counsel assume greater responsibility, authority and influence, they have become skilled purchasers of legal services. Some also have insider knowledge of what it is like to work on the other side of the table, having been in private practice before. Shuva Mandal and Priya Mehra are good examples. Mandal, the new general counsel of Tata, worked previously with Shardul Amarchand Mangaldas & Co and AZB & Partners, while Mehra, the new general counsel at Indigo Airlines, has practised with AZB, Jones Day and Gibson Dunn & Crutcher. Such lawyers know exactly how to buy legal services, having sold them before. They understand the inner workings of law firms, how to maximize efficiency, demand adequate partner time and negotiate a fee structure that doesn’t spiral out of control.
Rachika Agrawal Sahay, who worked at Trilegal early on in her career, is now the general counsel at Ostro Group. “I think little is done by Indian firms to structure their teams,” she says. “As a result, clients get billed mostly for the learning curve. That’s why most clients look for capped fees, and matters that cannot be capped such as negotiations, become a pain point between clients and the law firm.”
This tight rein on legal budgets in-house has forced law firms to rethink their pricing strategies. Many recognize that because in-house legal departments are continuously growing, general counsel can afford to spend less on outside counsel and be decisive about what is outsourced, to whom and at what cost. As a result, several law firms have taken a step back from the conventional hourly billing model to offer more flexibility and predictability with regards to legal fees.
“We have moved away from traditional hourly rates to bespoke billing structures in a large number of matters,” says Pravin Anand, the managing partner at Anand and Anand, and a loyal supporter of India Business Law Journal’s billing rates survey. He explains that the trademark and patent departments, for example, work on fixed rates per activity rather than billing by the hour. He says that the firm’s use of hourly billing has not disappeared altogether, but explains that this model is normally used for matters such as large patent litigation, which is based on a blended rate.
Anand Prasad, who set up Chambers of Anand Prasad after leaving Trilegal earlier this year, has moved to “value-based billing” instead of the normal hourly rates and has “no definite fee structure”.
“Clients are moving towards lump sum fee arrangements instead of hourly rates,” says Seema Jhingan, a partner at LexCounsel. “Our firm has signed many such fee arrangements over the last year.”
Rajesh Ramanathan, a partner at Factum Law in Chennai, agrees with this. “The hourly billing system has reduced considerably,” he says, estimating that only 25% of matters at his firm are billed using this model. Other firms which only occasionally use the hourly rate are Altacit Global, Athena Law Associates and ROYZZ & Co. “Only 10% of our billing is based on unforeseen circumstances, which is without a pre-estimated cap,” says ROYZZ managing partner Mahua Roy Chowdhury. Nasikwala Law Office, meanwhile, has done away with hourly billing altogether.
Fee fever
In this landscape of tightly controlled legal budgets, India Business Law Journal presents its 11th annual billing rates survey. As always, the survey is highly anticipated by in-house lawyers in India and beyond. “I really appreciate the topic chosen, which concerns all corporate counsel,” says Nandan Kumar Baranwal, the senior legal manager and company secretary at Felguera Gruas India in Vishakapatnam. “It is much discussed internally by various business unit heads and also in the boardroom.”
The survey is our largest to date, with an analysis based on 82 participating firms of between three and 630 lawyers from Ahmedabad, Bengaluru, Chandigarh, Chennai, Cochin, Delhi, Hyderabad, Kolkata and Mumbai. We highlight our findings through a series of infographics and present the full table of billing rates below (for subscribers only).
For the first time, one of the country’s top-tier law firms, Cyril Amarchand Mangaldas (CAM), has revealed its billing rates. Over the past 10 years, most of 含羞草社区 top tier law firms firmly refused to share their legal fee schedules, citing issues of privacy and confidentiality. CAM’s participation this year is a reassuring sign of a commitment to transparency at the highest levels of legal practice and will hopefully encourage other law firms of a similar stature to come forward with their rates in the future. The firm’s involvement in the survey will also give our general counsel readers a unique insight into the price point for legal services at the top, providing an interesting comparison with other large firms such as Lakshmikumaran & Sridharan as well as smaller firms across India and outside the Delhi-Mumbai circuit. Of course, since the majority of participating law firms are small or mid-sized entities, our findings are naturally more reflective of trends at those levels.
This year billing rates decreased across all categories from junior associate to managing partner, with the average hourly rate for a lawyer falling 4.6% to US$227 from US$238 last year. The hourly rate for a junior associate dropped only slightly to US$121 down from US$123, while the senior associate rate fell by 2.9% to US$168 from US$173 per hour. The average junior partner rate tumbled by 4.9% to US$229 from US$241 per hour. Senior partner rates saw the sharpest decline by 5.2% to US$293 from US$309 per hour. Managing partner rates also sank by 4.9% to US$350 from US$368.
As with last year, the results reveal vast differences in the price of legal services. The hourly rate for a junior associate, for example, ranges from US$30 to US$300, while managing partner rates vary from US$150 to US$1,100 per hour.
“Subject to certain aberrations, legal services in India are under-priced when compared to legal sectors in other countries,” says Lalit Bhasin, the president of the Society of Indian Law Firms.
In some cases, clients may have to pay a premium for advice from practitioners with a niche and specialized practice area focus. Sambhav Ranka, a partner at the recently merged IC Universal Legal, says that the firm’s billing model is “based on the success of certain practice areas”. He adds: “We are able to claim a premium if a particular practice is flourishing … for other practice areas, billing rates are highly competitive.”
The popular alternative
The increasing preference for alternative billing models reflects the findings of research conducted by the Association of Corporate Counsel at the end of 2016. The ACC Law Department Management 2016 Report – which includes the perspectives of 300 chief legal officers, general counsel and legal operations professionals from 37 industries across 25 countries – showed that the legal departments which maintained consistent budgets, applied innovation to their work, and utilized management practices to drive efficiency were the ones most highly valued for their strategic advice.
One innovative approach most commonly cited by general counsel and chief legal officers in the ACC report was the use of alternative fee arrangements. The respondents said that implementing such fee arrangements ensured a greater than 90% chance of achieving budget targets, helping companies to manage costly litigation and other projects.
Gaurav Khanna, the deputy general manager at Tata Realty, believes “the majority of Indian law firms offer value for money by partnering with a client to understand the requirements and find solutions.” From a cost point of view, Khanna says “the big players are a bit expensive, but then they do provide sound advice which reassures stakeholders.”
Nitin Mittal, head of legal, compliance and company secretary at Philips Lighting India, agrees that top law firms offer good value for money. “Good value for me means the services rendered are commensurate with the fees paid along with qualitative advice, top research without client insistence, vertical thinking on other related issues, promptness, meeting deadlines and eagerness to understand client needs and issues in both legal terms and practical business terms.”
Khanna prefers fixed fees and some element of a success-based fee. “For general retainership-related advice, we are comfortable with hourly rates, however it is important to identify and agree on the specific partner who would work on your transaction so that one has continuity and an alignment of views.”
Mittal too, believes fixed fees are the way forward. “The fixed fee model lends discipline and prevents unnecessary stretching of work as well as research by overzealous associates when doing an assignment. It lends focus and clear timelines.” He reports transparent billing structures at Shardul Amarchand Mangaldas & Co and Khaitan & Co, saying the latter is “the most flexible to client needs”.
Baranwal at Felguera Gruas India is also critical of hourly billing, calling it “non-transparent”, “unfair” and “arbitrary”. The problem he says, arises because corporate counsel cannot question the number of hours spent on a matter after receiving an invoice for hourly billing. For this reason, he suggests a flat rate or assignment-based fee agreed in advance. He cites positive experiences with Dua Associates, Seth Dua & Associates (now part of Advaita Legal) and KB Legal, which he describes as “fair, reasonable and transparent”. Large firms, he says are “not only expensive … [but] also unapproachable and rigid”.
Gyan Prakash, legal counsel at a real estate company, takes a different approach, suggesting that big firms should be engaged, but caution applied when selecting a partner. “Firms like Shardul Amarchand Mangaldas, AZB or Luthra are fine, but remember that it depends with which partner you are going to work. Some partners are really punctual and send bills on time, while others within the same firm may send bills which are wrong and clearly breach the signed MOU.”
Why law firms should care
In-house counsel aren’t the only lawyers to benefit from being conscientious about costs while delivering value. Outside counsel may be consulted more regularly, guarding a company’s legal goalpost, if the advice comes at an attractive and fair price. “Clients today look at their legal counsel not merely as a specialist adviser, but as a partner supporting them in resolving either a problem or winning an opportunity,” says Vandana Shroff, a partner at CAM. “In this kind of partnership, a counsel needs to offer a solution that is optimal, commensurate with costs. Clients also expect their legal counsel to honestly estimate the work involved in the engagement and thereafter periodically communicate efforts being made against such estimates. This provides not just mutual comfort but also a better match between client expectation and counsel effort. This is the meaning of value.”
Firms such as Lall & Sethi use a variety of software to manage billing and improve time management. The firm developed its own billing application – Pinksheets – in-house, and also uses other software including CounselLink, Ascent, Quovant, Brandstock, CounselGo and Anaqua. “We have a bespoke, in-house developed application called ClickIPR which also helps us track billing for each stage and give an estimation of the expected expenses in the future,” says Raghav Malik, the firm’s managing partner. The application incorporates fixed and variable billing processes and “enables us to pull out customized reports and to ensure automated billing, invoicing and recoveries management.”
Ahmedabad-based AMLEGALS introduced flexible data-driven billing rates from 1 April, which founder Anandaday Misshra says has reduced litigation and legal costs for his clients by up to 35%. “The client has been able to get value in terms of more quality work, while getting rid of hefty bills and/or per hour rates. The latest rates are based on data-driven pricing [while also accounting for] tenure of relationship, quantum of work, frequency of work, routine work, etc.”
According to Nitin Sen, the managing partner of Lexcellence, “the market will always remain competitive and the tendency of undercutting and price disruption will always be there, especially by new entrants, i.e. old colleagues forming new firms.” He believes, however, that savvy clients know how to separate the wheat from the chaff allowing better firms to quote higher fees based on their body of work, domain knowledge and market reputation. “Personally, our style is to start modest and build up the client’s trust,” says Sen. “We seek to recover any subsidized fees through repeat work, or a higher rate for new work from the same client. We point out that we handled the first matter at a very reasonable rate and that it is time for the client to reciprocate. We do not – and no one should – entertain doggedly scroogy clients who only look at the price … disregarding quality and competence.”
What are the alternatives?
A sample of different billing models offered by Indian law firms
IC Universal Legal: Blended fee model – a uniform charge-out rate applies for the entire team irrespective of seniority of firm member involved.
Chadha & Chadha: A fixed pricing model is widely used as transparency matters the most to us and our clients. Another alternative billing arrangement is the retainership model. For long-term clients with routine and predictable business, this model seems a better fit.
Nasikwala Law Office: For court matters, we charge by effective appearance, which means an appearance where a matter is argued for at least 10-15 minutes. In the Indian courts there are numerous times when matters either do not reach before a court closes or an adjournment is granted. Sometimes a matter scheduled for the morning is held back and heard after 3pm. We are present when all the foregoing occurs. These delays occur more frequently than one desires and we term them “non-effective appearances” and do not charge for them (unlike most counsel who do).
Brus Chambers: There are very few law firms that are practising ship arrest work. Clients are billed on fixed fees (stage wise) until arrest of the ship. In most cases they pay the requested fee in advance.
Clove Legal: Retainer model – where the volume of work is substantial on a regular basis and for a specific type of work (such as commercial contracts, intellectual property-related such as licensing contracts, general consultancy, legal notices, etc.)
Keeping legal costs low
In-house counsel share tips on money management
Engage external counsel based on their expertise in the required domain area and not on their fame – Vidya Subramanian, deputy general manager of IPR, Reliance Life Sciences
First understand the nature of expertise of the firm you would like to engage. Do not settle on one firm before obtaining fee quotes from at least two or three similar sized firms. Extensively discuss the advice you will require on a regular basis and in the future – Nandan Kumar
Baranwal, senior legal manager and company secretary, Felguera Gruas India
In-house counsel should first try to negotiate fixed fees based on the assignment and define timelines and expectations clearly. In the few instances where fixed fees cannot be agreed, it would be prudent to agree on a blended rate where higher partner involvement is possible. Additionally, a cap of billing can be agreed and hours over that cap may have a further discount since the law firm will also have economies of scale. It is important when billed by the hour to monitor the hours spent on a weekly basis against the work done and the cap agreed – Nitin Mittal, head of legal, compliance and company secretary, Philips Lighting India
Be clear in your expectations and requirements and get a confirmation that the external counsel has understood this. Having a detailed case of opinion ready with all the supporting documents helps in reducing the briefing and understanding time. Also, clearly point out and/or mark the relevant clauses that you would like the law firm to review – Gaurav Khanna, deputy general manager, Tata Realty
Hourly billing only leads to an in-house lawyer losing control over legal spend. Concurrence of what is the right amount is unlikely to happen. It is important to bifurcate matters that can be managed internally and those that are required to be outsourced (such as land diligences and matters requiring expert domain knowledge). While legal spend is a necessary evil, it can be managed judiciously – Rachika Agrawal Sahay, general counsel, Ostro Group
