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.
Several firms offer different rates to foreign and Chinese clients, alive to the fact that the former may be accustomed to charges by the hour. Jiang Fengtao, the founding partner of Hengdu Law Firm in Beijing, says foreign clients are normally billed by the hour while domestic clients are given the additional options of alternative billing practices, including lump sum billing, fixed fees and milestone-based billing.
Hanna Huang, an attorney at Boss & Young in Shanghai, says her firm primarily charges a fixed fee or works on a contingency basis. Under the first arrangement, a fixed amount is paid by the client and covers all of the work to be performed, regardless of how many hours a lawyer spends on the case and regardless of the outcome. Contingency fees, in contrast, are based on results, so the legal fee is divided into two parts. “The first part is a set amount, which is not very high and will be paid by the client at the very beginning,” says Huang. “The amount of the second part will be determined according to the results. If the lawyer wins the case, they will be allowed to keep a certain percentage of the damages a client receives … If the lawyer loses … the client will not have to pay the second part.”
Jeffrey Quan, a senior partner at ETR Law Firm in Guangzhou, says alternative fee structures provide greater transparency and fairness, which is why only 10% of the firm’s matters are billed by the hour. “Our firm is one among many PRC law firms that still prefer to use lump sum fees, fixed fees, activity-based charges and milestone-based billing with a cap,” he says. “We also offer negotiated rates for corporate and high-value clients who require assistance with court cases or non-litigation matters.”
More and more customers are willing to pay a reasonable price for legal services, says Guo Leming, a partner at V&T Law Firm in Shenzhen. “Attorneys’ fees are generally on the rise, especially in good offices. Fixed charges are still the mainstream. There is still a long way to go when it comes to time charges.”
BANG FOR YOUR BUCK
An, at Amazon China, says in his experience PRC firms offer good value, particularly for dispute settlements. “Good value means offering practical solutions that really work, rather than a mere interpretation of the law at a reasonable price.”
Victor Shen, chief legal counsel at Henkel Greater China and Korea in Shanghai, agrees and defines good value as “providing practically feasible solutions based on solid China legal expertise and deep insights into China’s actual regulatory environment”.
Ng, at Shui On Development, believes PRC firms do not really offer value for money, “because most of the time we as in-house lawyers may need to do further research to make sure the advice given is correct”.
Good value varies from person to person, says a corporate counsel at a Japanese company in Shanghai. “The overall lawyer fee is a bit expensive at present, especially at the major firms, which have surpassed the Japanese law firms.”
Of course, with more than 300,000 lawyers practising in the Chinese legal market, and the wide array of legal service options, diverse opinions are expected. “Some law firms and lawyers do offer value for money, but not [all of them],” says Wang, at United Family Healthcare. “In my opinion, ‘good value’ means professional, efficient, answer-oriented legal support.”
Teo Doremus, a foreign legal consultant at IPO Pang Xingpu in Shanghai, believes clients recognize and appreciate added value, and therefore are willing to pay extra for an enhanced service and level of professionalism. “At the end of the day, any decent firm can draft an agreement – the difference lies in the experience.”
Doremus uses a hotel analogy, saying that while both one-star and five-star hotels offer a bed for the night, the price between the two is enormous, yet some clients are happy to pay the difference. IPO Pang’s “five-star service”, says Doremus, is implemented in a number of ways including: granting clients a complimentary call or meeting to discuss their business and legal needs, no matter how big or small the company is; responding to enquiries within 24 hours; and organizing complimentary seminars and webinars to educate clients about China’s “peculiar legal landscape”.
“We do not differentiate based on how much a client is paying us,” he says “We believe that everybody deserves five-star treatment, whether the client has retained us to register a simple trademark or to work on a complex cross-border acquisition.”
As global companies expand through China’s cities and towns, and Chinese companies conquer new businesses worldwide, they will undoubtedly turn to the country’s lawyers for advice on compliance, risk management and effective governance.
Leslie Zhang Weihua, the vice president and general counsel at United Energy Group in Beijing, says he relies on firms to provide a commercially workable solution from a legal perspective, to understand his industry and working style, and for regular updates on developments in the relevant practice areas.
Tom Yu, the legal and corporate affairs director at Anheuser-Busch InBev China in Shanghai, believes that while Chinese firms have delivered value, the price for “labour” work, such as “time-consuming but basic legal research”, is often quite expensive. “I hope the market can be divided into a low-end labour market and a high-end creative market that requires a lot of problem-solving skills,” he says. “I’m willing to pay more for the high-end service.”
Assessing the difference between Chinese and foreign law firms, An at Amazon reports “better granularity and consistency of billing notes at foreign law firms”, but adds that “local law firms are improving”. A client’s ability to clearly define their requirements and expectations can also be helpful. “When we set clear processes for law firm billing – for example, that all billing must be made on a monthly basis – all firms can ensure this is followed.”
Pan applies a similar logic, suggesting that clients should define the value they seek before going to an expensive law firm. “This can be a difficult task, even for an experienced in-house lawyer,” he says. “If the client eventually gets more than what was expected, and spends less than what was budgeted, it probably can be called ‘value for money’. ‘Good value’ is a matter of comparison, and has to be judged, unfortunately, based on trial and error.”