PRC law firms reveal their hourly billing rates for the first time in this unique report on legal fees, Vandana Chatlani reports
Disclaimer: All Chinese law firms were eligible to submit their billing rates for publication, there were no fees or any other requirements for participating. The billing rates shown in this report were provided by the participating law firms, and have not been verified by the publisher.
How much should you be paying for legal advice in China? The answer to this question of course depends on who you engage and what kind of advice you are seeking. But one thing is certain – navigating China’s complex and rapidly changing legal system requires diligence, intellect, creativity and a deep knowledge of national laws and the various ways they may be viewed by local governments, courts and businesses.
Partners at local Chinese law firms have said in the past that international lawyers would struggle to win assignments, particularly from state-owned companies, if they failed to offer more flexibility on legal fees. The situation is no different to India. In both jurisdictions, clients are exceptionally cost-conscious and firms quoting bargain prices often reign supreme.
In-house lawyers have become discerning, savvy buyers of legal services, with an increased awareness of how to secure value while also keeping costs low. They negotiate hard and demand fixed fees to keep a tight rein on their legal spending. The expansion and growing internationalization of Chinese firms through tie-ups with foreign partners also means that clients can enjoy domestic legal advice with a global outlook at attractive rates.
COST-CUTTING AND COMPETITION
As law firms in China jostle for a slice of the meatiest deals, they are often forced to come up with attractive fee quotes, much to the satisfaction of their clients. As Ye Qiuye, an in-house lawyer at CADFund in Beijing, says confidently: “There is no law firm that cannot be replaced. If your price is high, I’ll certainly be looking for someone else.”
The legal service market in China is more open than ever, says Paul Zhou, a partner at Wintell & Co in Shanghai. “Clients also have better knowledge of their legal service demands,” he says. “Law firms may need to lower their rates to drive revenue growth, improve marketing effectiveness and successfully compete against their rivals.”
But as Karen Ng, general counsel at Shui On Development in Shanghai, points out, the danger with undercutting is that it may result in a “lower quality of service provided to us”.
An Jun, the Beijing-based associate general counsel at Amazon China, says foreign firms may feel greater pressure as a result of price wars because a number of partners at local law firms have trained overseas. “They deliver pretty much the same quality at a much discounted price,” says An. “But ‘value for money’ is not my first priority when selecting law firms. I always want the best advice, and price consideration is secondary. Cutting prices to win clients does not work for me.”
Pan Qi, former assistant general counsel at Johnson & Johnson, takes a similar view, emphasizing that value should be the key focus rather than price. “The lowest price can be the worst value,” he says. “This is also what a good law firm wants the client to focus on.” But defining ‘value’ in a tangible way can be tricky. “In the China market, because most local clients do not have the tradition and experience of using law firms, it is even more difficult for them to judge the quality and value of a law firm,” says Pan. “It takes time for the market to mature. At the same time, law firms should also be more sensitive to the legitimate concern of clients for budget control. The highest price can be the worst value as well.”
Against this backdrop of competition, cost-consciousness and corporate counsel desires, China Business Law Journal presents its first annual billing rates survey. Our analysis of legal fees is based on 19 firms of vastly differing proportions, with firms of between 20 and 4,800 lawyers, from intellectual property boutiques to full-service behemoths across Beijing, Guangzhou, Shanghai and other cities taking part. We highlight our findings through a series of infographics and present the full table of billing rates at the bottom of the page.
While insightful and revealing, these figures are not necessarily representative of the entire legal market. Several law firms firmly refused to share their legal fee schedules, citing issues of privacy and confidentiality. As a result of the varying sizes and experiences of the participating law firms, our results offer a snapshot of legal billing trends in China’s vast legal market.
This year the average hourly rate for a lawyer was RMB2,788 (US$420). The average hourly fee for advice from a junior associate came to RMB1,494, and for a senior associate RMB2,069. Clients seeking input from lawyers at a partner level would be expected to fork out an average of RMB2,605 for a junior partner, RMB3,172 for a senior partner and RMB3,663 for an hour of a managing partner’s time.
The results reveal vast differences in the price of legal services. The hourly rate for a junior associate, for example, ranges from RMB500 to RMB2,200, while managing partner rates vary from RMB2,000 to RMB6,000 per hour.
THE POWER OF THE HOUR
While general counsel in India, the US and UK actively move away from what is often termed the “outdated” hourly billing model, citing its lack of transparency and tendency to encourage inefficiency and unpredictability, some say Chinese clients are slowly embracing it.
“Traditionally, legal work in China was mostly based on a ‘project’ basis, with the client and the law firm agreeing beforehand on the amount of legal fees for a particular matter,” says Pan, who has retired from Johnson & Johnson. “But hourly rates are increasingly used, especially for certain types of work.”
James Guo Zhongqing, a senior partner at AllBright Law Offices, is certain that the practice of hourly billing will increase. “With the rapid growth of China’s legal service demand, law firms in China will slowly change their billing rates and practices in the future to reflect those of their peers in developed jurisdictions such as Europe and the US. The percentage of billing by hourly rates will definitely increase sharply in the near future.”
Jiang Qi, a director at Beijing DHH Law Firm, agrees with this assessment. “At present, hourly billing has not been completely implemented in China. Compared with foreign law firms, law firms in China tend to apply fixed fees, or fixed fees together with hourly billing. The current model in China will last for some time. However … hourly billing will be used more frequently in the future.”
Other lawyers offer similar predictions. Both Wang Dan, a director at Longan Law Firm, and James Chen Jianbin, the managing partner at Zhuoxin Law Firm, believe that although hourly billing isn’t a mainstream practice at present, it is becoming more common and accepted.
“Hourly billing has obvious advantages and should be mainstream but we should not rule out contingency fees or lump sum fees especially for litigation or result-driven projects,” says An, from Amazon China. “I prefer a hybrid model.”
Ye at CADFund shares a similar preference for a hybrid model, often choosing hourly rates with a fee cap to keep her legal budget in check. “In the case of litigation or arbitration, hourly billing may be better than capped fees,” she says. “It is wrong to assume that capped fees and hourly billing are conflicting and irreconcilable.”
Pan explains that paying by the hour can in some cases be the most appropriate method for a lot of legal work, benefiting both firms and their clients. For example, he says, if a client were to call a lawyer for a discussion, the lawyer would be unable to predict how long the call would last, or how much work would follow on from the call. In this case, hourly billing would work best for both sides. Similarly, he says, paying by the hour is ideal in urgent or highly unpredictable cases, and offers what he calls the lowest “transaction cost”, where a lawyer can begin work immediately without wasting time on which billing method to use, making the relationship “simple and efficient”.
However, says Pan, firms wishing to ensure client loyalty must be willing to match price with value, offering suitable billing structures depending on the matter at hand. “Hourly billing can sound absurd from a certain perspective (the slower, the better?), but there is indeed a good reason for it. Hourly billing should stay, and will stay, but both law firms and clients should actively consider alternative billing practices when hourly billing is not the most ideal method … [by] measuring the amount and quality of legal work in a more objective and transparent way.”
Judy Wang, the general counsel at United Family Healthcare in Beijing, illustrates why law firms must be nimble to win work by outlining how billing preferences can change based on the task in question. “For routine consultations I prefer to use hourly billing. For M&A and IPOs I would choose a package fee, and for litigation I would select a contingency fee.”
Chinese law firms are certainly aware of this need for flexibility, having offered alternative fee structures as a normal practice to their cost-conscious clients for years. Steven Zhu Xiaohui, the managing partner at Tian Yuan Law Firm in Beijing, says his firm offers lump sum billing, fixed fees and hourly rates with a fee cap. “It seems that the clients are less and less willing to pay on an hourly rate basis without any cap,” says Zhu. “They prefer a lump sum fee or hourly rate with a cap, although sometimes they may agree to a soft cap, i.e., a cap based on certain assumptions such as a project closing before a certain point in time.”
Benjamin Bai, an associate at Shihui Partners in Beijing, says about one-third of the firm’s matters are billed using alternative fee structures, particularly lump sum billing (see table “Hourly vs alternative billing”). He adds that legal fees for venture capital, private equity and capital market deals appear to be decreasing.