Our 2019 billing rates survey finds legal fees rising, but a difficult economy is putting pressure on law firms’ margins. Vandana Chatlani reports
India’s economy is in dangerous waters. In August, data from the National Statistical Office put India’s GDP growth rate at 5% in the first quarter of the 2020 financial year – the slowest rate of growth in the past six years. Consumer demand has fallen. Unemployment continues to pose challenges. Growth in eight key sectors of the economy including coal, steel, cement and natural gas production plummeted from 7.3% in July 2018 to 2.1% in the same month this year, according to the Ministry of Commerce and Industry.
Heavy monsoon rains and flooding have fuelled agricultural woes, delaying harvests and shrinking supplies. The price of onions doubled in recent months to around ₹80 (US$1.10) per kilogram, leading to an unexpected ban on exports in order to drive costs down locally.
While households hope for more affordable onions, corporate counsel, reeling from the economic slump, are bargaining for better legal fees.
“Clients are reluctant to spend on legal fees on account of the current economic situation in India,” says Apurv Sardeshmukh, a partner at Legasis Partners.
Other factors also have a role to play. “The pressure on fees continues on account of increased competition from more law firms, as well as from larger in-house teams,” says Vijay Sambamurthi, the founder and managing partner at Lexygen. “Some of this pressure is healthy, as it clips inefficiencies at law firms, but some of it is clearly not, as it forces even some of the larger firms to offer unrealistic discounts, which inevitably results in the dilution of quality.”
Tightening their belts
While escalating competition provides buyers with more choice and control over fees, it also forces law firms to squeeze their profit margins.
“There is definitely a pressure to retain fee rates at 2018 levels,” says Gautam Khurana, the managing partner at India Law Offices. “We have seen a tightening and more conservative approach from clients towards billing.”
The demand for alternative fee arrangements is stronger than ever before. Badri Narayan, a partner at Lakshmikumaran & Sridharan, points to a higher demand for fixed-fee arrangements from Indian clients, while Seema Jhingan, a partner and co-founder at LexCounsel, says law firms are adopting innovative methods to attract new clients and retain existing ones.
“We have been requested by multiple clients to provide creative approaches to billing, which involves a blend of hourly rates, fixed fees and alternative pricing structures such as volume pricing,” says Naveen Varma, a senior partner at ZeusIP.
Anju Khanna, the managing partner at Lall & Sethi, notes the proliferation of new law firms and independent practices that has driven rates down even further, “irrespective of the quality of services being provided”.
However, not all firms have moved towards alternative billing structures. Spice Route Legal has done the opposite. “We have transitioned from offering fixed-fee models to virtually offering only hourly rates,” says partner Mathew Chacko. “In addition to this, we have a subscription model for routine corporate and commercial assistance. By and large, we find that clients are willing to pay for quality work, partner attention and responsiveness.”
Firms offering specialist advice are also “rewarded with a greater volume and variety in mandates”, says Rodney Ryder, the founder and managing partner at Scriboard, and command “better fee ranges”, says Manoj Kumar, the founder and managing partner at Hammurabi & Solomon.
Regardless of their capabilities and fee structures, law firms are having to work harder than ever to win assignments as corporate counsel increasingly handle the majority of legal work in-house.
Sanjit Kaur Batra, legal head for South Asia at DuPont, says she engages external counsel “only for litigation, an expert opinion, or for a big M&A transaction”. Law firms quoting extortionate fees are unlikely to win Batra’s approval.
“In today’s scenario, a higher fee is a deal breaker,” she says. “However, the exception could be a big M&A deal or a high-stakes litigation where we would like minimal risk.”
Rajendra Misra, executive vice president and general counsel at The Indian Hotels Company, emphasizes how cost-conscious many organizations and their legal heads can be. “Today, more than ever, general counsel and corporate budgets are under strain. General counsel are balancing cost versus benefit, looking for value-added services, personalized services, etc.”
Misra believes many breakaway law firms have succeeded in providing quality services at attractive prices, and urges long-established firms to adjust their rates and offerings accordingly. “This is a reality the world over,” he says. “Law firms that fail to recognize this reality will continue to face issues.”
Higher rates, harder bargains
Amid the crisis of a weakening economy, we present the results of our 13th annual billing rates survey. The survey is based on an analysis of 75 participating firms of between three and 590 lawyers from Ahmedabad, Bengaluru, Chandigarh, Chennai, Kochi, New Delhi, Hyderabad and Mumbai. We highlight our findings through a series of infographics throughout this article.
In the past 12 years, most of India’s highest-ranked law firms have refused to reveal their billing rates, citing privacy and confidentiality.
Ranji Dua, the managing partner at Dua Associates, says he was reluctant to share his firm’s rates because of the “over-competitive spirit of Indian lawyers”. From Dua’s perspective, “different practitioners adopt multiple and varied combinations for billing depending on the nature of the instruction, client, complexity of the matter, etc.”
Dua’s observations are not without merit. After all, Shardul Amarchand Mangaldas & Co (SAM & Co) confirmed that while the fees published in our table represent its “rack rates”, the firm “negotiates each mandate individually based on various factors, and hence there could be several variations”. This also explains why the rise in billing rates this year may seem at odds with law firm reports of fee pressure in this article.
Nevertheless, India Business Law Journal’s survey continues to offer a baseline for legal fees, accounting for fluctuations caused by economic tumult, law firm fractures, market pressures, stronger in-house teams and investor sentiment. However, the figures quoted must be viewed carefully alongside views from partners and in-house counsel, which indicate a continuing trend towards discounts, fixed fees and other pricing models that may considerably drive down final invoices.
The inclusion of SAM & Co and Lakshmikumaran & Sridharan this year indicates a commitment towards open, transparent and best-practice billing among the most prestigious rung of law firms. We hope their leadership inspires other firms to step forward and share their rates in the years to come.
Comparing SAM & Co’s rates with those of other large firms such as Lakshmikumaran & Sridharan, mid-sized veterans, as well as newer niche firms, will provide insights on billing methods across the legal community. Since a majority of the participants are small or mid-sized law firms, our findings are more reflective of trends among them.
As with last year, billing rates increased across all categories from junior associate to managing partner – with the average hourly rate for a lawyer climbing 7% to US$257 from US$240 last year. The sharpest increases appear in the junior and senior associate categories. The hourly rate for a junior associate increased 6.2% to US$136 from US$128, while the rate for a senior associate rose 6.1% to US$190 per hour from US$179. The average junior partner rate grew by a modest 4% to US$255 from US$245 per hour. Senior partner rates were up by 4.7% to US$332 from US$317 per hour. Managing partner rates also grew by 4.2% to US$391 from US$375 per hour.
Indian Lawyers Fees (US$ per hour)
Innovative pricing strategies
Law firms are adapting to the demand for customized pricing strategies by creating fee templates to suit different mandates and specific client needs.
“We generally try and come up with creative billing structures that are tailor-made, depending on the client’s requirements,” says Verma at ZeusIP. “There is no one-size-fits all approach in this respect, and the billing model offered often depends on the type of work involved. For example, it is possible to provide volume-based pricing on matters such as renewals, where attorney time involvement is low, however, this approach would not be possible in contentious matters, where attorney time involvement is high.”
Other law firms are following suit, devising fee structures to enhance flexibility and predictability in a bid to retain clients.
LexCounsel’s wide spectrum of alternative billing arrangements includes: retainers for select longstanding clients; assignment-based fixed fees irrespective of the time involved for work such as registrations, regulatory approvals and company incorporations; blended hourly rates regardless of the seniority of lawyers involved; and capped fee structures with a minimum-to-maximum fee estimation in the case of private equity investments, joint ventures and collaborations.
India Law Offices charges a fee per hearing in court for litigation and arbitration matters, and offers stage-wise fees for all compliance and defined corporate advisory matters. It also provides the option of a monthly retainer for clients who have engaged the firm for “a suite of legal services”.
Clients can opt for a “subscription-based model” at Spice Route Legal, which entitles companies to block a certain number of lawyer hours in a month. The firm also offers a significantly discounted rate for startups.
Shipping specialist Brus Chambers sticks to fixed fees and stage-wise billing for ship arrest work on the basis that clients pay an advance prior to beginning the work. It also offers lump sum fees and an annual retainer with discounted blended hourly rates.
Scriboard has a structured flat fee schedule for clients requiring assistance with intellectual property filing and prosecution, while Altacit Global charges a monthly fixed fee for clients on a retainer basis, or a fixed fee per matter, based on prior estimation.
Athena Legal encourages micro, small and medium-sized enterprises, which typically lack internal legal teams, to consider a monthly retainer, which covers most legal work and allows for substantial day-to-day advisory.
At Titus & Co, alternative billing arrangements include fixed or capped fees, blended rates, monthly retainership fees, daily rates, stage or activity-based charges, per appearance charges for court matters (effective and non-effective appearances), and fees charged per document.
According to Shonali Choudhry, a partner at Advani & Co, the fixed-fee model is appealing to clients engaged in arbitration as these costs can be scheduled in their annual legal budgets. The firm also caps hourly fees on the basis of stages, or combines fixed fees and hourly billing. In addition, it has assisted several international clients in obtaining third-party funding for arbitration.
Although the popularity of alternative fee models is evident, law firms and clients have not dispensed with hourly billing altogether. Hourly charges are considered ideal for one-off opinions or short-term assignments, but even in those instances, corporate counsel often seek discounts.
In addition to capped fees and lump sum fees, Indian Law Partners offers discounted blended hourly rates for every level of lawyer, irrespective of their designation.
Meanwhile, AMLEGALS provides blended hourly rates based on the average rate of two or more lawyers who work on a case, and extends greater benefits of the blended rate as the consumption of hours increases.
Lexygen has developed an innovative alternative billing structure called the “post-estimate slider model”. Clients are given an estimate of fees and charged the standard hourly rate until the time clocked by Lexygen’s lawyers reaches the fee estimate. Once the fee estimate is crossed, the firm continues to bill on an hourly basis, but at discounted hourly rates.
“In larger and more complex deals, we sometimes have two or three levels of ratcheting down discounted hourly rates pegged to the breach of multiple estimate numbers,” says Sambamurthi. “This model has worked quite well, as our clients know that we have meaningful pressure to keep our fees within the estimates, while we have the comfort that the deal doesn’t become a bottomless crevasse for us, as fixed-fee arrangements often can.”
Most of the lawyers surveyed in this report agreed that payment delays and the recovery of dues was a serious issue. In the current economic climate, the tardiness to clear dues is expected to increase. Some sympathize with clients who have legitimate reasons for requesting longer credit lines, or for failing to pay on time, particularly if they are smaller entities or startups facing financial hardship. Others are less understanding.
“It’s a never-ending problem,” says Jaya Bhatnagar, the founder and chairperson of SiebenIP. “Regular follow-ups take years to produce desired results.”
“For small companies and individual brand owners, late payment is a norm rather than the exception,” says Sheetal Vohra, the managing partner at Vohra & Vohra. “It requires constant follow-up via email and phone.”
Shrikant Hathi, the managing partner at Brus Chambers, says claiming dues has been a major problem where hourly billing has been used. In these cases, clients paid 50% upfront, however, Hathi says the remainder became difficult to recover. “In most cases, we had to forego approximately 20-25% of our fees.”
Timely payments are the least of Pramod Kumar Rai’s concerns. The managing partner at Athena Law Associates says the firm was not paid even after winning cases for its clients. “Today our outstanding/NPAs are more than US$500,000.”
Apurv Sardeshmukh, a partner at Legasis Partners, says about 20% of the firm’s clients end up delaying payment. “About 5% of our annual fees are written off due to non-payment.”
“It is becoming a serious problem of late due to the financial crunch clients are facing,” says Ravi Singhania, the managing partner at Singhania & Partners. “The problem is more so for domestic clients than overseas clients.”
The culprits, say several lawyers, are often reputable companies with deep pockets.
“We have a problem with non-payment amounting to approximately 6% of our billings and have instituted a system of blacklisting clients and groups that refuse to pay or renegotiate fees after the work is complete,” says Chacko. “Some of the names on the blacklist would shock you.”
Abhishek Datta, a partner at Aureus Partners reports similar problems. “We have a software-based system for billing, however, there have been instances when established names in business have refused to respond to emails and phone calls when payments have been due. In such circumstances, we have no real avenue of recovering the payment, as we do not want to sue our clients for these issues.”
Like Aureus, many firms have adopted software to help track billing hours and charges. Some use existing software such as Quickbooks, Provakil, Uberall and LegalXGen, while others such as ZeusIP and Lall & Sethi have designed proprietary software for case management and billing. The remainder continue to use timesheets and manual billing, relying on accounting teams to chase outstanding payments.
Firms have also adopted other methods in an attempt to ensure client credibility and timely payments.
Khanna says Lall & Sethi always accounts for a bad debt of 2-3% since 100% payment recovery is not possible, and commences work for clients “after doing a due diligence of their market reputation in all aspects”.
Other firms threaten or put a stop to work altogether if payments haven’t been settled. “At times [we have to] suspend work or at least indicate to [clients] that we will be constrained to suspend the work,” says Reena D’Costa, a partner at Rajani Associates.
At Singh & Associates, if payments are yet to be made once a client’s credit period has expired, the firm’s ERP software disables or locks further access to the client’s files, preventing lawyers from working on the concerned matter.
LexCounsel has recently started sending demand notices to “delinquent clients”. Jhingan explains that no new work is undertaken for existing clients unless they have cleared past payments that have been outstanding for more than six months. “This has helped in reducing the outstanding payments, but not diminished them.”
When constant reminders fail, partners may have to step in. “Our accounts department sends remittance reminders to clients every fortnight,” says Sumes Dewan, the managing partner at Lex Favios. “This is an ongoing process followed up with calls in case of further delays. After 60 days partners are required to personally intervene and take up the issue of non-payment with clients.”
Legacy Law Offices has registered itself under the Micro, Small and Medium Enterprises Development Act, 2006. Under the act, clients who fail to pay legal fees must report the outstanding amount to the government.
For Ravichandra Hegde, a partner at Parinam Law Offices, regular and intermittent billing has been an effective solution. “Clients will never find it difficult to clear a small or interim invoice,” he says. “We have considered monthly billing, or billing per hearing, which has helped a lot. Clients will know and remember the effort and time taken for the hearing as it is fresh in their minds. If invoices are delayed and there is no punctuality in entering the time sheets, then additional time is deployed, firstly to remember the time spent and the work undertaken … and secondly to discuss this with the client who would already have forgotten the scope of services rendered.”
The legal field remains a buyer’s market. While legal fees may be higher in cities such as Mumbai, New Delhi and Bengaluru, costs are still kept relatively low as established players offer alluring discounts as they fight to protect their turf from newer, more nimble firms with lower overheads.
While corporate counsel have the power to dictate current price points, many say they are prepared to pay a higher fee for specialist advice, the addition of value, efficiency and responsiveness.
Priya Mehra, the general counsel at IndiGo Airlines, expects “timely and responsive advice presented as concisely and cogently as possible”. Law firms that understand the company’s business needs and drivers are naturally at an advantage, she says.
For Nitin Mittal, general counsel, head of legal and company secretary at Signify, the quality of services and prompt responses are key priorities. However, he considers multiple additional factors before making a selection. “Intuitively you take a decision based on reliability, quality of past services, honesty, transparency, flexibility in fees going forward if a matter turns out to be complex and not as expected, partner involvement, and the ability to provide advice in a straightforward manner.”
Nexus Venture Partners spends between ₹15-20 million on Indian legal counsel each year (which includes fees paid by investee companies to Nexus’ lawyers as part of the company’s investments). Like Mittal, general counsel Arun Madhu says he would be willing to pay more for some sort of differentiator based on what is needed in the circumstances. “Sometimes it’s a combination of responsiveness and diligence, sometimes it’s providing practical and efficacious solutions bearing in the mind the big picture. Essentially it is going above and beyond or doing something that is perceived to be value additive.”
Madhu hopes firms will spend more time building their capabilities, nurturing talent and improving management processes. “It would be great to see firms leveraging existing experience in a better manner, investing in people, time, education and standardization of transaction documents, all of which should be a win-win for everyone in the long run.”