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Category: Hourly Billing

Study: Washington, DC Outpaces Peer Cities on Hourly Rate Growth

February 15, 2024

A recent Law.com story by Abigail Adcox “ ‘D.C. Was Our Best-Performing Region’: Billing Rate Increases and Demand Growth Drive Strong Year in the Beltway”, reports that law firms based in Washington, D.C., finished out 2023 with a strong financial performance, propelled by billing rate increases, expense control and robust demand within regulatory and litigation practices, according to results from a bank survey.

Among D.C.-based firms, gross revenue was up 7.6% in 2023 over the previous year, higher than the industry average of 6%, as the average billing rates in the region rose 8.8% compared with the industry average of 8.3%, according to Wells Fargo’s Legal Specialty Group’s year-end survey results.  Those results included eight firms headquartered in the D.C. region.

“D.C. was our best-performing region,” said Owen Burman, senior consultant and managing director with the Wells Fargo Legal Specialty Group.  “When talking to firms to really find out what drove it, the regulatory side was on fire for so many firms. And litigation overall has been supporting many firms this past year.”  In average revenue growth, D.C. firms exceeded peers in New York City (7%), California (6.6%), Texas (6.3%), Florida (5.9%), Chicago (5.2%), Philadelphia (4.7%) and Atlanta (4.4%), according to Wells Fargo data.

“The practice mix was very much in favor of D.C.-headquartered firms” in 2023, Burman said, citing robust demand within restructuring, antitrust and litigation practices, as other firms saw the impact of slowdowns in the transactional market.  It follows a lackluster 2022 for D.C. firms, which “underperformed,” as anticipated enforcement activities under the Biden administration didn’t come to fruition as expected, according to Burman.

However, in 2023, as demand picked up within regulatory and litigation practices, D.C. firms were able to control expenses and were less aggressive in hiring, contributing to their revenue growth.  Profits per equity partner were up 10.7%, compared with the industry average of 4.9%.  The number of full-time equivalent lawyers at D.C. firms also grew by 2%, slightly below the industry average of 2.8%. However, productivity at D.C. firms was down 1%, still better than the industry average (down 2.1%).

Demand among all lawyers was also slightly better at D.C. firms (0.9%) than the industry average (0.7%), but fell short of peers in New York City, which saw a 2% increase in demand.

Controlling Expenses

Meanwhile, total expenses grew 4.1%, the best out of all eight regions tracked, and above the industry average of 6%.  “They were able to control the expense growth much better than peers,” Burman said.  “Last year they were able to control the lawyer compensation pressures a bit more than other markets.”

Billing rate increases were in large part able to compensate for increases in lawyer compensation at D.C. firms last year.  “All together the rate increases are covering it.  The problem is that they were hoping it would cover other investments and now they have to redirect that money into supporting the lawyer compensation,” said Burman, adding that artificial intelligence and innovation investments are other top priorities for firm expenses.

Because of these expenses and other priorities, in 2024, D.C.-based firms may see more expense pressure, and they may be more in line with the industry averages in expense growth, he said.  Still, entering the year, D.C. firms are “optimistic,” Burman added, expecting strong demand within litigation and regulatory practices to continue.  “Their growth estimates are quite optimistic,” Burman said.  “Litigation, restructuring practices are still quite strong.  So those haven’t tailed off as we’re anticipating this rebound in transactions.”

ALM Covers NALFA’s 2023 Litigation Hourly Rate Survey & Report

February 2, 2024

A recent Law.com story by Michael Mora, “Where Miami Ranks in States Litigators Charge Highest Attorney Fee Rates,” reports on NALFA's 2023 Litigation Hourly Rate Survey & Report.  The story reads:

The National Association of Legal Fee Analysis released new intelligence providing micro and macro data of hourly rate ranges for both defense and plaintiff lawyers, which one attorney-fees expert said is the confluence of the coronavirus pandemic changing the geography in which people are living and working and the emergence of Miami on the national scene.

And that expert, Edward Mullins, a partner at Reed Smith in Miami, is not involved in the study.  The Am Law 100 firm attorney said he was surprised by the portion of all rates in Miami being at 18% in the most expensive tier and suspected that it is due to the influx of major law firms entering into the market in the last few years.

“Many of the new lawyers coming in are working not on local work, but more likely are doing work that is based in other areas like New York or other areas from where they are emigrating,” Mullins said.  “These new lawyers are integrating their N.Y. rates into the market and increasing the rates, but I don’t think that the rates charged for local work are increasing at the same pace.”

The NALFA empirical survey and report provides that micro and macro data, which, in addition to ranging from defense and plaintiff attorneys, does so at various experience levels, from the largest law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  Over 24,800 qualified litigators participated in the survey.

Here, there are four categories: tier one, which ranges from $250 to $450; tier two, which runs from $451 to $700; tier three, which ranges from $701 to $950; and, tier four, which runs from $951 to over $1,300.

Nationally, Washington, DC, has the largest tier four percentage at 25%; then falling to a tie in second at 18% with Miami and New York.  For tier three, Washington has the highest percentage by far, at 51%; with San Francisco in second at 32%, and New York tied for third at 30% with multiple cities, including Boston and Los Angeles.

As for tier two, New Orleans and Las Vegas garnered the highest percentage at 44%; followed by Phoenix, Arizona, and San Francisco, at 43%; and, several cities fell closely behind, including Dallas and Denver with 42%.  And, for tier one, New Orleans has the most, standing at 39%, while Phoenix sits at 35% followed by Las Vegas at 33%.

Article: Seven Key Metrics to Evaluate Spend on Outside Counsel

January 8, 2024

A recent Law.com article by Rosemarie Griffin, “Seven Key Metrics to Evaluate Spend on Outside Counsel”, reports on metrics to monitor outside legal spend.  This article was posted with permission.  The article reads:

Gartner research shows that external spend comprises approximately 45% of overall spend for the median legal department, yet legal leaders often have trouble understanding where much of that spend originates.  Legal leaders continue to invest in spend management solutions to improve their insights into external spend data.  However, many of these same leaders find it difficult to translate that data into insights to inform decision making, even when spend data is accessible in dashboards or reports. 

When it comes to improving how external spend is evaluated, legal leaders should first determine the goals they want to achieve (e.g., reducing costs or improving quality) and then identify and track data to inform strategic decisions.

Gartner experts have prepared seven example metrics that legal leaders can use to inform their external provider management and align it with their organization’s overall strategy.  The following examples provide a framework for assessing needs and working with vendors and/or internal teams to build similar reports.

1. Total Spend Over Time Comparison

Comparing spend over time, especially in a visual dashboard, enables legal leaders to quickly spot trends or instances that could lead to overspending  This type of comparison also provides a holistic picture of historic spend in given periods, allowing for better budgeting.  One of the most valuable means of displaying comparative spend is with total spend per month, compared year over year.

Better historical spending data allows for more accurate budgeting, enabling legal departments to base projected future spending data on similar spending during that period in previous years   Historical spending trends can also help determine potential upticks in seasonal work and how much spending might be expected to fluctuate.  Comparing this information makes it easier to spot outliers when reviewing spend reports.  When legal leaders notice outliers from previous periods, they can analyze individual matter budgets from that period to see if a unique event explains that spending and, if not, adjust future spending, renegotiate with law firms and/or adjust the quantity and type of work sent to external providers.

2. Spend Compared to Budget

Once legal teams create a budget, they can also leverage data to manage that budget by tracking law firms’ spend.  While budgets with law firms are not always accurate, legal leaders should still track budget overages and use any overages to save money by renegotiating the amount billed and increasing scrutiny in future bills with that firm.

If a law firm is consistently over budget on matters, legal leaders should take a deeper look into the matters being billed by that firm.  It may be possible that one matter is significantly over budget, for known and expected reasons, but all matters coming in consistently over budget indicates a larger issue.  This might mean the in-house team member responsible for managing firm spend is not effectively managing a firm, or it could mean the firm is consistently ignoring budgets when making staffing and billing decisions.  Monitoring this data at the macro level can allow teams to proactively address any budget issues without waiting until large matters are completed.

Once a potential issue is spotted, legal leaders should speak with the matter owner(s) in the department working with a firm to see if there is an adequate explanation for the deviation.  From there, they should work with the firm to create a plan to readjust spend or rework the budget if necessary. It is important to track these overage conversations and any improvements on budget compliance to use in vendor evaluations.  Having conversations with vendors about their budget compliance legitimizes the budget and ensures a firm will monitor the available budget when making staffing and billing decisions in the future.

3. Blended Rate

Another helpful tool for monitoring law firm billing is the blended rate.  A blended rate, the average rate of all roles by hours billed, helps clear any confusion and identifies the true hourly cost the firm is billing, instead of just the rates billed by each role at the firm.  An effective report might visualize the average blended rate for top vendors as ranked by their total fees billed.

Understanding the blended rates first helps identify which firms are charging more, on average, per hour.  Using a blended rate ensures firms cannot hide costs by overusing staff with high billing rates.  Legal leaders can then take a closer look at potential over billers to see whether the matters billed by that provider justify the higher billing rate, or if they may be using high-cost attorneys unnecessarily.  Leaders can then negotiate rates or staffing or take advantage of alternative fee arrangements (AFAs).

4. Matter Staffing

To complement the data from blended rates (or provide a proxy, if the department cannot access that data), legal leaders benefit from a breakdown of the percentage of roles (paralegal, attorney, partner, etc.) billing the department from each firm.  If staffing is too senior, the department is paying higher rates than required for a task.  If the staffing is too junior, the work may not be adequate for the quality expected by the firm.  One way to visualize this data in a report is by displaying staffing allocation, by vendor, for vendors that bill the most fees, or a selected list of vendors.

Understanding what type of role executes the work will allow legal leaders to quickly see if a firm may be over- or underusing expensive law firm partners or attorneys for the work billed.  For some workstreams, such as major litigation, extensive use of experienced attorneys may be required.  For these cases, legal leaders may look to ensure partners and high-value attorneys have devoted considerable time to that work.  Blended rates alone cannot provide this information.

However, if a firm is generally used for low-complexity work, significant partner use could be unjustified, leading to unnecessarily high rates.  Visualizing this information is especially useful when combined with data on blended rates and billing guidelines, as blended rates will support an overbilling hypothesis and guidelines allow the legal department to clearly lay out what roles should be executing each type of work managed by a firm.

5. Turnaround Time

Aside from direct costs, another important outcome to report is the turnaround time for individual matters.  Slow turnaround time can delay matters and increase costs. However, if turnaround time, for similar matters, decreases significantly without explanation, it could be an indicator of lower work quality.  Turnaround time alone cannot adequately explain cost overruns or outcome quality, but it can be used as an indicator to take a closer look at a firm’s work.  Legal teams can visualize turnaround time by sorting matters by priority and plotting median turnaround time for matters at each priority level. 

Legal leaders can monitor firms’ work speed and compare them to the previous year to check in when turnaround times are longer than average, meet with firms to diagnose the issue (if times are unjustified), and create a plan to improve performance and maximize value.  This approach can also reduce cost if additional time is leading to more billed hours.  Any significant slowdowns could be from the complexities of a major individual matter or other factors, but it is an indicator that legal leaders should take a closer look at that individual firms’ work to evaluate whether the slowdown is justified.  Turnaround time metrics can be valuable, but they rely on legal staff to close out matters properly for accurate data.  This metric is only effective alongside established expectations for closing matters.

6. Strategy Versus Complexity

Another way for legal leaders to monitor their use of outside counsel is through the distribution of external matters by complexity and strategic value.  While this requires legal staff to accurately gauge and input the information, it can be extremely useful to evaluate the mix of work sent to external providers.  Some departments and external spend management solutions provide legal leaders with the tools to rate matters by qualitative metrics (including strategic value and complexity) when opening a matter and presenting these matters in a grid.

One of the most effective ways of reducing outside counsel costs and increasing the value received by in-house resources is to consider the strategic value and complexity of a matter when deciding whether to send something outside.  Legal leaders should aim to keep matters of high strategic value (other than major litigation) in-house as much as possible, where they have the best knowledge of the business.

Any matters of high complexity and low strategic value are good candidates for outsourcing to law firms, while low complexity, low strategic value matters are good candidates for alternative legal service providers (ALSPs.)  If legal departments see a large percentage of high strategic value matters sent outside, they may reduce outcome quality for the business and reduce the strategic benefit of in-house resources.  At the same time, if low complexity matters are being sent to law firms, then legal departments have an opportunity to insource those matters or shift that work to lower-cost ALSPs.

7. Grid Summary Report

To better compare spend across firms and practice areas, legal leaders can use a grid summary report that displays spending in a grid with the top 10 to 20 practices as rows, and the top 10 or 20 firms as columns.  Ideally, this report would classify rows into tiers of firms.

A grid report typically visualizes the gaps and overlaps and can help inform opportunities for consolidating spend.  At minimum, seeing this grid should allow the department to ask, “Are we making the right allocations?” If the report indicates a law firm is not often used, or is used for only one stream of work, then it may be a suitable candidate for consolidation.  Often, legal leaders report they are unaware that a single attorney is engaging with a firm until they get a complete spend report.  Tiering by practice area allows the department to notice this behavior more easily.

Strong relationships with law firms are valuable, as they will have better knowledge of the business and can provide better opportunities, including bulk discount on fees, secondments, and additional services, such as those provided by a captive ALSP.  These benefits can often be increased (particularly for organizations with smaller overall legal spend) by consolidating work to a smaller number of firms.  If a firm is being underused across practice areas but provides good value for work in other practice areas, legal leaders can also instruct their teams to shift work away from other firms to that firm.  This shift increases the value provided in a practice area while minimizing the loss of relationships that may occur by bringing on new firms for a practice area.

Other Metrics to Consider

The list of metrics above is not comprehensive of all metrics available from spend management platform vendors, or all metrics that may be useful when making strategic decisions on outside counsel.  Other recommended metrics (that may or may not be available from vendors) include spend by firm tier, average vendor rating (from after-action reviews at matter close), and top matter owners by spend.

External spend management platforms can provide some options for reporting, and legal teams can build on these systems to create their own reports to ensure they have the data required to make effective external spend decisions.  These reports can also help legal show the value it provides to the business, by showing how it has increased the efficiency of theory spend or reallocated work to better outcomes.

Rosemarie Griffin is a Senior Research Principal at Gartner.

Kirkland’s Billing Rate Nears $2500 in Big Bankruptcy

December 15, 2023

A recent Reuters story by David Thomas, “Top Bankruptcy Firm Kirkland Boost Billing Rates, Nearing $2,500 an Hour”, reports that one of the world's busiest bankruptcy practices is raising its top hourly billing rates to $2,465, as law firms press for higher and higher fees in major corporate restructurings.  U.S. law firm Kirkland & Ellis disclosed the new maximum rate in a series of court filings in bankruptcy cases involving its clients Rite Aid, We Work and Yellow Corp.

Hourly lawyer rates reaching $2,000 were nearly unheard of just a decade ago, but more recently they have been steadily creeping above that mark for some attorneys.  U.S. litigator David Boies’ hourly billing rates this year in a class action lawsuit against Deutsche Bank was $2,110. Covington & Burling said last year in a filing that senior partners’ top rate at that firm was $2,500 an hour.

The $2,465 top rate for Kirkland, which lists 329 restructuring lawyers on its website, matches what prominent Hogan Lovells appellate lawyer Neal Katyal charged for his time last year in a high-stakes bankruptcy case involving a Johnson & Johnson subsidiary.  Bankruptcy work can be a major source of revenue for large law firms, as corporate restructurings often require armies of lawyers and sometimes drag on for many years.

Under the new ranges unveiled by Kirkland, bankruptcy partners will charge between $1,195 to $2,465 an hour; of counsel bill $820 to $2,245 an hour; and associates bill $745 to $1,495 an hour. The rates will be in effect by Jan. 1, court filings said.  The filings said Kirkland's billing rates are "subject to periodic adjustments to reflect economic and other conditions," as well as lawyer promotions.  Its top hourly rate was previously $2,245, according to a Nov. 20 filing in the We Work Case.

Chicago-founded Kirkland is the highest-grossing law firm in the United States, according to data collected by The American Lawyer, with revenues of $6.5 billion in 2022 and more than 3,400 lawyers.

Kirkland has represented more than 120, or 10%, of the large public companies that filed for bankruptcy since Oct. 1, 1979, according to a research database co-created by University of California, Los Angeles law professor Lynn LoPucki.  Nearly half of those cases were filed between 2013 and Dec. 31, 2022, according to the database.

Judge: Vague Billing Justifies 10 Percent Cut in Attorney Fees

November 29, 2023

A recent Law 360 story by Beverly Bank, “’Vague’ Billing Justifies 10% Cut in Atty Fees, Judge Says”, reports that a federal magistrate judge recommended slashing an Iron Workers' benefits funds' request for attorney fees in a case over an employer's unpaid contributions, saying there are "vague" billing entries from the plaintiffs' counsel as part of a $2.2 million judgment.

U.S. Magistrate Judge Kimberly G. Altman issued a report and recommendation, suggesting the district court cut a nearly $111,000 attorney fee request from Iron Workers Local No. 25's benefit funds by 10%.  The attorney fees dispute is connected with U.S. District Judge Nancy G. Edmunds' order, requiring Next Century Rebar LLC to pay more than $2.2 million in unpaid contributions with interest and liquidated damages.  The company filed a notice of appeal to the Sixth Circuit.

"Portions of the trustees' itemized hourly work are described insufficiently to prove that the work 'was performed with reasonable diligence and efficiency,'" Judge Altman said.  The judge said many of the funds' billing entries linked to an audit are "vague," necessitating a drop in proposed attorney fees from around $110,900 to roughly $99,800.  Judge Altman did not disturb the funds' request for more than $18,200 in costs.

The judge pointed to billing entries connected with an audit, saying some entries about the correspondence and emails with the auditor "provide the court with little information as to the necessity of the work."  The benefit funds requested around $110,900 in October, saying the plaintiffs' counsel spent 388.8 attorney hours in pursuing the case.

Next Century Rebar called billing entries linked to the attorney fees request "excessive, duplicative, and vague" as part of the company's Oct. 30 response. The company challenged the funds' bid for fees over review of the audit.  "Excessive review of the audit is ongoing throughout the time entries of multiple persons without any detail or reason for the excessive amount of time spent reviewing, re-reviewing, and again revisiting the audit report," Next Century Rebar said.

The company said the funds were seeking fees for clerical work that could have been undertaken by a legal clerk or assistant to the plaintiffs' attorneys.  Judge Altman found that some of Next Century Rebar's complaints about the clerical work entries were valid and warranted lower attorney fees.  "Next Century has highlighted instances where parts or all of the described work was clerical in nature and could have been handled by paralegals or other staff at much lower rates," the judge said.

The judge took on arguments from Next Century that the request related to audit costs of about $13,000 was "outrageous," saying the company didn't raise evidence to back up this claim.  Judge Altman said an affidavit "from an attorney that worked closely on this case and on the review of the audit" corroborated the cost of the audit.