Firms often downplay the importance of fees in the buying decision, and are correspondingly tight-lipped about their hourly rates. But are in-house lawyers of the same opinion? ALB examines the clients' real criteria
Behind the rhetoric preached by most in-house and private pactitioners on the reduced importance of rates lies an entirely different story: money does matter. Yet it is difficult to get both the firms and the clients to say it how it is.
For commercial reasons firms tend to publicly downplay fees' importance in the greater scheme of things. However one need only look to the IPO work that Richards Butler has undertaken recently, which barely turns a profit, as an example to see that the firms are slashing rates just to get their foot in the door. Right across Asia firms are re-jigging their fee structures in response to the economic slowdown or, in other words, to the fact that the heady days of charging big bucks for most matters are gone. Firms are now much more open to negotiation.
Does money matter?
Economists would answer the question of how much change there has been in what private practitioners are charging by looking at how much cutbacks in the large multinational companies are affecting the demand for legal work in Asia. Legal practitioners however tend to be tightlipped - they often simply don't want their peers to know what they are charging or paying for legal work.
Many firms have been cutting costs so aggressively across most business areas that they don't want to give in-house practitioners leverage when negotiating. The firms are simply playing their cards close to their chests. Moreover, firms are wary of undercutting.
This brings us to the question of how important hourly rates are when making the buying decision. According to many Asian firms, their importance depends on the kind of client the firm is servicing: corporate and banking clients often prefer more fixed-rate type fee structures, whereas in litigation hourly rates or a mixture of blended rates are more likely to be used.
In-house counsel, the firms say, are predominately concerned about the aggregate value rather than hourly rates or costing - what is the value of the product they are receiving compared to the dollars getting handed over? As one Hong Kong mid-tier firm puts it: 'Will someone who is US$50 more expensive provide a better level of expertise?'
Despite the importance of fees, other factors obviously contribute to a client's buying decision. The question is where counsel place the emphasis when making this decision and where costing fits into their criteria.
In-house perspective
Chris Leberne, counsel for ABN Amro in Singapore, says it's difficult to establish what criteria to employ when outsourcing legal work to private practice firms. 'We try and control costs and quality by setting up panels of approved external lawyers,' he says.
But specific considerations, he says, are more detailed. 'It needs to be cost effective - [our] bank is looking for value in costing matters and price is not usually the sole or overriding determinant of value.
'Value might come in many forms, including expertise, quality of service, reliability, experience, trust and the ability to react to our needs or those of the urgent deal,' he says. 'In some cases the legal costs are passed through to a customer of the bank and this can influence the selection of external lawyers on a particular transaction.'
Quality of legal service is also an important attribute, Leberne says. 'Documentation and legal advice should be clear and well written and should reflect the instructions of the bank. Above all, advice and documentation should be legally correct and commercially useful.'
Director of legal & regulatory affairs at Singapore-based DHL International, Greg Tanner, says that while fees are important, there are other attributes that affect his decision more when engaging outside practitioners.
According to him, the most important questions to ask in order of priority are:
- Does this firm have the skill set and experience to deal with the issue?
- Which individual lawyers will be assigned to the case?
- What is the reputation of the firm and individual lawyers?
- Are fees comparable to other similar firms and reasonable?
- Will the firm entertain a request to develop alternative billing strategies?
- What is their commitment to response time and communications?
- Do they understand my business?
Kenneth Ng, counsel for HSBC Hong Kong, agrees with Tanner in this regards. Ng says issues such as technological knowledge, responsiveness, and an ability to think both laterally and creatively are key when determining which firm to engage.
'Hourly rates are useful for comparison among firms, but are only relevant in reality when looked at together with "time spent', or by individual lawyers with different charge-out rates because of expertise, seniority etc,' Ng says.
When choosing a law firm, says David Fagan - chief executive partner of Australian firm Clayton Utz, clients in Asia will consider the same criteria as clients in Australia: their existing relationships, the breadth and depth of a firm's experience, and its ability to deliver first-rate advice based not only on the law but also in a context involving an understanding of the client's operation and market.
'Cost will certainly be a factor but the quality of the advice will always come first,' he says.
However there are instances, says Greg Tanner, where fees and costing plays a greater factor when considering the buying decision. 'For run-of-the-mill contract negotiations, debt collections etc ... the fees become of great importance, and we'd expect to negotiate significant savings off hourly billing. Maybe not a flat or fixed fee, but $X upto Y stage, and $Z up to Q stage, with a kicker/downside depending on results,' he says.
According to David Simpson, general counsel Leighton Contractors, personal relationship/trust is the most important criteria when making the buying decision. 'External lawyers often have the ability to work autonomously on certain work and I need to have trust that they will be pursuing our interests in a cost-effective manner, and coming to me immediately when they're in need of instructions,' he says.
'The second criteria is fitness for the proposed task: [an external lawyer's] legal ability needs to be excellent and their experience in that area vast. It's horses for courses,' he adds. 'Thirdly & cost comes into play. We need to see good value for money; this is not based on cost alone, but value for the cost.'
Private practitioner
Belt tightening is all the rage in Asia, mainly because tough economic times are curtailing the budgets many companies once had to dish out for huge amounts of work to the private sector.
The private practitioners are tightlipped about their charge-out rates, mainly because different economic conditions means firms are redefining the way they attach fees to their services.
It seems in-house counsel, therefore, have a real opportunity to cut expenditure on legal requirements while still obtaining top-quality services. Yet the firms continue to claim that the fees aspect of any engagement is surpassed by other more important factors, even though they are open for a greater degree of negotiation in regards to cost.
Nicholas Norris, partner and head of Simmons & Simmons' corporate group in Hong Kong, agrees: 'We recently commissioned MORI [one of the largest independent market research companies in the United Kingdom] to survey a number of our clients worldwide to determine their thoughts on a range of issues,' he says.
'On the issue of selecting firms, our clients responded that reputation, experience and track record are fundamental to their selection,' he adds. 'They also held the view that you get what you pay for, and "quality is costly'.
'Most important, however, were our people. Our clients deemed the quality of service, and whether they could work with us as individuals - citing a mixture of chemistry, responsiveness and efficiency - to be critical factors.'
While price was seen as important, Norris says, it was far down the list of essential criteria that the firm's clients required. And that seems to be the trend among most Asian jurisdictions. Peter Kiely - senior partner at Kiely Thompson Caisley in New Zealand - says price is a factor but genuine expertise in the field is most important. 'Being available is also essential & along with the personal attention a firm can provide,' he says.
Chris Howse - senior partner at Richards Butler Hong Kong - suggests when engaging outsourced legal expertise most companies ask themselves: 'Does the firm have the competence [to undertake the work] and deliver it in the time frame required, and at the right price?' According to Howse, hourly rates are less important than the total cost of the job.
Martin Green - managing partner at Stephen Harwood in Singapore - agrees, but suggests there is a definite line between the benefits of expertise and the tangible cost: 'What drives the giving of instructions in Asia is the price and perceived expertise'.
Green notes that the buying decision undertaken by most companies involves a process whereby firms are shortlisted on expertise, 'and then price becomes the significant differentiator,' he says.
One partner from a mid-sized Korean firm - who chose to speak off the record - says price, while a differentiator, is negotiable: 'If it's not off the chart then it should be ok'. He refers to the importance of retention as more significant and, he says, once business has been sourced and executed effectively through solid performance, this is when firms can start to up the ante on costing - or open up more room for negotiations between both parties.
And there are parallels in how this process of interaction, the fees offered and the firm's size have an impact on the overall picture.
In-house counsel are concerned about work quality, says Mona Lee of Lee International South Korea. 'Generally speaking, the larger and more reputable corporations select from the larger and more reputable law firms, as the larger and more reputable law firms became larger and more reputable because of the quality work product they put out.
'Most top-tier law firms have comparable rates, and in-house counsel aren't going to let a difference in rates of, say, US$20 per hour, be a factor in the decision-making process,' Lee says.
Other than cost factors, what in-house counsel consider is responsiveness to inquiries - ie whether the lawyer is quick to respond, are more likely to be used - essential when making the buying decision. 'Yet another factor is the lawyer's willingness to learn the client's business and offer strategic solutions.
'Thus, if the lawyer can craft a game plan that takes into account the big picture and saves the client money in the long run, that lawyer's valued,' Lee says.
'Finally, other, more subjective factors come into play, such as compatibility with the outside lawyer: does the in-house counsel enjoy working with and being around the outside lawyer?' she asks. 'The business of law is so stressful that any enjoyment that can be derived from working with another lawyer is a blessing. The business of law is also a service industry and so personality is an important criterion.'
Fees - jurisdiction-by-jurisdiction
Australia
As a result of a buyers' market and a weak Australian dollar, Australian lawyers are extremely cost-effective. Hourly rates are the most common although fixed or capped rates and no-win-no-fee arrangements are also seen.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
(Top-tier firm) US$260-320 US$150-250
Minter Ellison US$250-350 US$150-220
China
With worsening business conditions in Hong Kong, fees on the Mainland have become more competitive as lawyers flood the market. Fixed-fee billing and contingency fees are the most common, although hourly billing is becoming popular with domestic firms. Low fixed fees are charged for major projects by both the local and international firms.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Allbright Law Offices US$300 US$150-250
Jingtian & Goncheng US$250-300 US$100-180
Jun He Law Offices US$300 US$120
King & Wood US$250-350 US$180-220
(US$450 for exceptional cases)
Llinks Law Office US$200-280 US$100-180
Hong Kong
In the Hong Kong market in particular clients tend to like the concept of a discount. It varies as to whether clients insist on this by way of hourly rates or by negotiating the final fee charged, although it's more likely to be the latter.
Some firms are carrying losses to keep their position in the market, with substantial undercutting common on the more commoditised areas. Charge-out rates by local firms' partners are increasing but contingency fees remain prohibited.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Gallant YT Ho & Co US$250-500 US$200-250
(Mid-tier US firm) US$220-480 US$180-260
Herbert Smith HK$4,400-4,800 HK$2,350-3,750
Simmons & Simmons HK$4,200 HK$1,800-3,800
(UK firm) HK$4,500 HK$1,850-3,000
India
Fixed-fee billing is most common among Indian law firms, particularly for litigious matters. However, hourly billing rates can be requested in the corporate commercial area.
Rates vary considerably across the subcontinent. Mumbai is where the highest hourly rate for lawyers in India occurs, while New Delhi rates are slightly lower; Bangalore rates are lower still.
Discounted hourly rates are possible but contingency fees remain prohibited.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Amarchand Mangaldas US$250-325 US$150
Fox Mandal US$225 US$160-185
New Zealand
Law firms almost always still bill by the hour. Retainer fees and contingency fees, though permitted, are almost never used.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Kiely Thompson Caisley US$180 US$150
Glaister Ennor NZ$285-325 NZ$160
Pakistan
Hourly rates are common but fixed fees can be negotiated for certain work. Sole practitioners and litigators typically charge on a case-by-case basis.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Cornelius Lane & Mufti US$200-250 US$125-150
Geoffrey & Khitran US$393 US$50-110
Orr Dignam & Co US$300 US$200-250
Surridge & Beecheno US$220 US$75-150
Philippines
While domestic charge-out rates are generally lower than international rates, the nature of the billing will very much depend on the work. Caps and fixed fees are common on IPOs, bond issues and finance work but resisted on project finance transactions, for example. Retainer fees are also common.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Sycip Salazar Hernandez & Gatmaitan US$250-310 US$125-155
Singapore
Local rates can vary greatly in what is a competitive market and are dependent on the practice area and the reputation of the lawyer. The rates of partners at international firms are also lower than those seen in London or New York, for example. Beauty parades are common.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
(Mid-tier firm) US$250-400 US$150-280
KhattarWong & Partners S$350-600 S$150-300
South Korea
Rates vary considerably in Seoul, with clients demanding fixed fees and more transparent billing techniques. Contingency fees are allowed in litigation.
Corporate commercial lawyers' hourly rates
Firm Partner / hr Associate / hr
Lee & Ko US$250-400 US$250
(Mid-sized international firm) US$250-295 US160-180
(Large Korean firm) US$250 US$150
Bae Kim & Lee US$250-400 US$125-250