Corporate legal spending has reached new highs. What can law firms do to tempt in-house counsel to send more of it their way? Vandana Chatlani reports
Banking on an upswing in work thanks to liberalized investment policies, renewed optimism and a momentum that has long been lacking, 含羞草社区 lawyers are rediscovering their bullishness. This buoyant mood is not pinned purely on hope, but grounded firmly in numbers. A total of 1,800 listed Indian companies spent roughly ?219 billion (US$3.5 billion) on legal services between 1 April 2013 and 31 March 2014 according to research by the Economic Times Intelligence Group. This represents a 17.5% increase from the previous year. Pharmaceuticals, IT, oil and gas, capital goods and finance were the sectors with the biggest legal budgets and Reliance Industries, Ranbaxy Laboratories, Tata Consultancy Services, Larsen & Toubro and Infosys were the top five spenders.
The rise in legal spending has been attributed to the need to ensure compliance with a plethora of new rules and regulations. Transactional and litigious activity also plays a major role as does the enforcement of anti-bribery legislation globally.
The demand for legal assistance is promising, but clients increasingly expect fee flexibility and innovative costing to relieve the pressures on their purse strings. At the same time, greater exposure to international standards of legal service due to cross-border activity has created savvy in-house teams that expect their external counsel to deliver value through sharp skills, efficiency and business acumen.
“What we expect from law firms are the three Cs – cost, competency and care,” says Abhijit Mukhopadyay, the president of legal at Hinduja Group in London. In his opinion, “international law firms are fast considering these three aspects in line with the demand of clients. Indian firms have to catch up … especially in the areas of delivery of service.”
Highs and lows
A recurrent theme over the seven years of our research on law firm billing rates has been the refusal by 含羞草社区 largest law firms to participate. The biggest firms that have taken part over the years include ALMT Legal, Anand and Anand and PKA Advocates, all with around 100 lawyers.
This year, two new firms of a similar size – Link Legal India Law Services and Rajani Singhania & Partners – have pledged their support for billing transparency by publishing their rates.
In-house counsel, both in India and internationally, have shown their appreciation for this project over the years. “This is a good initiative for general counsel to understand the prevailing rates on a comparative basis,” says Vijayshyam Acharya, director of legal and compliance at OnMobile. “This is to be supported.”
India Business Law Journal’s eighth billing rates survey offers an interesting snapshot of the price of legal services across India. With firms of between four and 102 lawyers from Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kerala, Kolkata and Mumbai, this is our broadest sample of firms to date. The continued absence of 含羞草社区 largest firms means our results reflect trends across the country’s small and mid-sized legal establishments.
A total of 60 law firms revealed their billing rates this year – the largest number of firms to take part since the inception of our survey. Of these, 13 revealed their rates for the first time. The average hourly rate in the junior associate category increased by 4.3% from US$115 to US$120, while senior partner fees rose by 2.6% from US$265 to US$272 per hour. These fees have increased by 33% and 18% respectively, since our first survey.
Rates in other categories showed decreases of less than 4%. The average senior associate rate is US$164, down by 2.4% from last year while junior partner rates fell negligibly by 0.4% to US$209 per hour. The average managing partner rate declined by 3.2% from US$308 to US$298 per hour.
The results reveal vast differences in the price of legal services. The hourly fee for a junior associate, for example, ranges from US$20 to US$300, while managing partner rates vary from US$64 to US$700 per hour.
Of this year’s respondents, 45 supplied their rates last year. Of these, 16 increased their rates, 25 kept their rates the same and four reduced them. Criminal boutique firm MZM Legal pushed its fees up by 46%, charging clients an average of US$300 per hour, up from US$205 last year. By contrast, DH Law Associates saw the biggest deduction, reducing its average hourly rate by 22% from US$265 to US$207 per hour.
Is the price right?
This year’s participants were divided in their assessment of the pricing of legal services in India. Some expressed the view that fees were generally fairly priced, while others were clear that Indian billing rates were largely underpriced.
Joachim & Janson in Kerala says its rates are below average because the majority of the firm’s clients are small companies. “Firms based out of Mumbai and Delhi charge very high rates, mostly because their clients can afford it and because larger companies have their corporate and registered offices based out of those places,” says partner Anup Joachim.
Most participants, however, are united in their criticism of senior counsel fees and of the costs associated with arbitration. Reflecting these views, Nitin Sen, the managing partner of Lexcellence in Noida, says of arbitrations and Supreme Court cases that “the common man including individuals, small companies, proprietorship or partnership concerns finds themselves hopelessly out priced and unable to access these forums”. Sen adds that while proposals have been introduced to shorten the timeframe in which arbitrations and cases must be completed, this does not address the high cost issue as arbitrators and lawyers are likely to demand the same fees, if not command more given the intensity of the workload involved.
Corporate law firms could also hike their fees in the near future as 含羞草社区 investment climate improves.
“Salaries and operating costs have gone up tremendously and may require us to increase our rates overall by around 5-10%,” says Prem Rajani, a partner at Rajani Singhania & Partners.
“The rate is bound to increase,” says Ashok Ram Kumar, an advocate at IP Markets in Hyderabad. “Since there are only a few IP boutiques in Hyderabad, there could be healthy competition.”
Blended, capped and fixed
A preference for alternatives to the hourly billing model has gained strength over the years, with corporate counsel keen to fix or cap their fees to curb spending.
“A lot more clients demanded flexible fee arrangements (including in-house counsel) which included capped fees or milestone-based mandates, with blended rates-based billing for time consuming mandates,” says Rabindra Jhunjhunwala, a partner at Khaitan & Co. “Hourly rates-based billing was increasingly limited to high-end and transaction negotiation phases of the mandate.”
Rajan Gupta, a partner at SRGR Law Offices, says many of his clients, especially domestic corporate groups but also multinationals which have been in India for several years, ask for a lump sum fee estimate before beginning any work. “Many clients also request a hybrid kind of retainership fee quote (e.g. a fixed minimum amount per month/quarter) covering limited hours of work in the period plus a blended hourly rate to be applied for incremental hours spent in the period,” says Gupta. “Such arrangements are generally requested by clients for day-to-day legal and compliance affairs and not for one-off transactions.”
Milestone-based payments have worked best for Legacy Law Offices, particularly in commercial arbitration and on infrastructure matters where the legal work is linked with the progress of a particular project.
United IPR largely follows a fixed fee structure for work relating to registration, prosecution, execution and enforcement, but adopts hourly rates for services such as drafting, researching and conferencing. “The fixed fee structure must be adopted wherever possible as it facilitates transparency and helps clients better allocate their budgets,” says senior partner Shravan Bansal.
Mukhopadyay at the Hinduja Group argues that Indian firms need to keep pace with global efforts to introduce new billing practices. “Worldwide, the hourly rate is being challenged,” he says. “It is important that Indian law firms also start innovating [and developing] alternative fee structures.”
While a number of respondents in this year’s survey offer a range of alternative fee schedules, some feel that it is hard to come up with a structure that can suitably account for unplanned eventualities. “With fixed fees, one is not able to envisage all the issues or complexities that may arise,” says Ravi Singhania, a partner at Rajani Singhania & Partners.
Lawyers are keen to satisfy the demands for novel billing processes, but worry they may lose a percentage of profit in the bargain. “At an early stage or, in fact, any stage of a matter, it is impossible to predict how much time will be spent and therefore to arrive at a fixed fee is very difficult,” says Anil Harish, a partner at DM Harish & Co.
The myths of hourly billing
While many decry what they consider to be the expensive hourly model, others stand by its merits.
In his article “In Defense of Hourly Billing”, published in Corporate Counsel, Daniel Whitney, the managing partner of US law firm Whitney & Bogris, argues that in many cases, the hourly model is the best way to achieve efficient and effective services in litigation.
In his view, excessive fees are the product of inadequate in-house counsel oversight and a lack of initiative to question the occurrence of overbilling. “The hourly rate billing system itself does not reward inefficiency, only in-house counsel who approve excessive bills reward such activities,” writes Whitney.
Corporate counsel who closely monitor the work done by external counsel express the desire for value for their money. However, Whitney warns that in their quest for efficiency, they should not be too hasty to replace the hourly rate.
Alternative models may seem appealing at first, but could complicate matters and threaten the quality of legal advice. Firms offering litigation services based on a flat fee have the incentive to settle fast in order to prioritize clients paying an hourly rate, argues Whitney. Lawyers who offer an annual flat fee arrangement may also settle fast “regardless of dispositive defences”, assign cases to inexperienced associates, and present clients with frequently changing staff, who need to be brought to speed from scratch. “It takes an experienced general counsel with good judgment and fortitude to stand up to a shortsighted CFO to explain why flat fee billing may not be the ready antidote to excessive legal fees,” he adds.
Anindya Sircar, associate vice-president and head of the IP cell at Infosys, is willing to accept hourly rates, but believes Indian law firms could “take up more accountability for the services provided and guide their clients better”.
“Every dollar spent by a business needs to add value to the business and when the matter requires the experience and expertise of a senior attorney, clients do not really mind paying that extra bit,” says Raja Selvam, an advocate at IP boutique Selvam & Selvam in Chennai.
Acharya at OnMobile says that firms which offer technically competent advice and provide the right inputs in a timely manner offer real value. “Many Indian law firms do offer value for money in this context,” he says.
Chasing the money
Indian law firms use a number of software products to manage their billing processes. Tally is a popular invoicing tool used by many firms, but Altacit Global plans to replace it with Quickbooks. “It is on the cloud and substantially reduces IT infrastructure costs while also tracking invoices, and providing reports of maturity dates, overdue payments, etc.,” says managing partner Sudhir Ravindran.
Finsec Law Advisors uses Deskaway by entering billable hours which generate timesheets that are then turned into invoices. “The software is an efficient and uncomplicated tool which is useful in logging hours relating to several matters,” says managing partner Sandeep Parekh.
Several firms have also turned to Uberall, Fidelia and Osource, using customized options of these systems to suit their requirements.
These products take care of the administrative side of billing, however, recording the necessary information to bring in revenue can be hard. Rajeev Goswami, the managing partner of RGA Advocates in New Delhi, says that it can be difficult to monitor time spent on out-of-office meetings and miscellaneous field activities. “It’s mostly about keeping track, especially when one lawyer handles simultaneous field assignments for different clients,” he says. “We do insist lawyers make immediate entries in their diaries, but I agree there’s scope for further improvement and we are on track to achieving this.”
Firms that succeed in noting down meticulously the hours spent on various activities may be unable to convert this into meaningful revenue. Internal rationalization of billable hours spent by counsel and justifying the time spent on a matter to a client are two challenges according to Ashish Porwal, a partner at Hreem Legal.
Sumes Dewan, the managing partner of three-month-old Lex Favios, echoes this sentiment. “It’s difficult to justify to clients the time spent on researching case laws and formulating legal opinions … many times the hours spent on these tasks cannot be billed.”
Tax issues present another headache. “The income tax laws have made it mandatory to get Form 10F and tax residency certificates from clients … in other jurisdictions,” says Sadaf Chowdhary, an associate at ZeusIP. Non-residents are required to submit this form in order to claim treaty benefits and zero withholding under Indian tax laws.
Premnath Rai, the managing partner of PRA Law Offices, says problems sometimes stem from the reluctance of some clients to sign an engagement letter upfront and a failure to provide clear billing instructions.
Atul Sharma, the managing partner of Link Legal India Law Services, concurs. “Collection of time sheets from lawyers in a timely manner and at times not determining the fee structure prior to providing the legal services [causes problems].”
Chasing outstanding payments where fees have been negotiated can also be tricky and may adversely impact relationships with important clients. “Some of the clients are such big names that continuous follow-up does not look appropriate,” says Sidhartha Srivastava, a partner at DH Law Associates.
Smart ways to save
Corporate counsel looking to minimize legal spending would do well to ensure their discussions with external advisers are “concise, action-oriented and structured”, according to Acharya. “Corporates often begin thinking during meetings with law firms, or prematurely engage them without having had internal discussions first,” he says. He recommends “structuring the scope of the assignment clearly and without loose ends so that costs are contained”.
Mukhopadhyay suggests that in-house counsel develop their own skills to reduce the outsourcing of legal work. He also advocates becoming business-friendly and working closely with the business to broaden commercial know-how. This too could help cut costs. He concludes: “They need to update themselves in terms of knowledge, in addition to maintaining good networking with the legal fraternity to receive advice that is free on many occasions.”
The above information was supplied by participating law firms with their consent for it to be published in India Business Law Journal. Law firms that declined to have their rates published are not included. The figures quoted are the average hourly billing rates for each category of lawyer. Actual rates may vary depending on the nature and complexity of work. Law firms may sometimes bill on a project basis rather than an hourly rate.These figures are indicative of hourly rate billing only. The average rates for each law firm have been calculated as the mean average of the billing rates provided for each category of lawyer. India Business Law Journal has not verified the accuracy of the billing rates supplied by participating firms.
