Companies are seeking to cut their legal bills as they struggle with rising input costs and interest payments, some of the largest law firms have warned.
The heads of three global firms told the Financial Times that corporate clients were asking for discounts on their legal bills or requesting payment be postponed until later in the year.
“We had a number of clients who said ‘I’m not going to pay you all that now, I’ll do it over a different timeframe,’” said Tamara Box, Europe and Middle East managing partner of international law firm Reed Smith.
“It really started in the third or fourth quarter of last year, [clients] — like us — were looking towards 2023 and thinking a lot of things were coming together in a way that looked bad — a war, rising inflation and rising interest rates,” she said.
Clients were considering how their cash flows would look and were asking for writedowns on bills and to pull some work owing to budget constraints, she added. Many were dealing with more work in-house.
The trend comes as top corporate law firms have found themselves dealing with a fall in transactional work due to slowing mergers and acquisitions.
Average hours worked per lawyer fell to 119 billable hours per month in the year to the end of November, according to a report by the Thomson Reuters Institute — the lowest level since it began tracking the data in 2007, when lawyers logged an average 134 hours per month. At the same time, expenses rose at double-digit rates.
Hogan Lovells, an international law firm, last week said revenue had fallen 6.7 per cent in dollar terms in the year to the end of December and partners took home 8.2 per cent less in profit shares on average.
Chief executive Miguel Zaldivar said inflation, Covid-19 and the war in Ukraine had all weighed on the firm’s revenue. Lawyers told the FT that those same pressures were hampering clients’ ability to pay.
The head of one large American law firm head told the FT that a client had asked for a discount for the “first time in years” and that the firm was “not getting paid by some clients”, particularly in the technology sector, which had shed jobs in recent months.
Separately Tim House, who manages magic circle firm Allen & Overy’s US practice, said that “lock-up periods have extended a little bit, so people are slower to pay”.
But he added that in general rates had “held up quite well” and even increased, helping to cushion the blow of reduced demand.
Lawyers said there were no norms in terms of the level of discount requested. Such negotiations also tend to be more common in certain types of work, while clients needing advice on high-stakes M&A, for example, may be less price-sensitive.
John Quinn, the chair of trial firm Quinn Emanuel Urquhart & Sullivan, said clients “under pressure” were asking “can you help us out?”
He added some clients were requesting fixed fee deals — for example, where they pay a set amount — rather than paying by the hour.
Richard Burcher, founder of law firm pricing consultancy Validatum, said: “It is a misconception that all clients want discounts . . . [when many want] greater price transparency and greater budgetary certainty.”
He said law firms were often turning to models other than the billable hour and also noted that discounts and fee negotiations were coming after a year in which law firms had raised their hourly rates to keep up with inflation.
