Midsize law firms take a bigger piece of big-ticket litigation

Nearly 60 percent of companies have 10 or fewer firms accounting for at least 80 percent of outside legal fees.

As more organizations look to cut costs when it comes to litigation, smaller firms are starting to get a bigger piece of lucrative corporate work as general counsel become savvier shoppers, according to a new study.

In fact, over the past three years, midsize law firms with 201 to 500 lawyers have nearly doubled their share of big-ticket litigation. The figure has risen to 41 percent from 22 percent of the work that generates more than $1 million in legal bills, based on the results of a new LexisNexis CounselLink report, “Enterprise Legal Management Trends.

One of the key trends driving this shift is the percentage of legal work a client provides to its top 10 law firms – 57 percent of companies surveyed have 10 or fewer firms accounting for at least 80 percent of outside legal fees. Another factor driving this trend is the frequency in which so-called large-enough firms offer alternative fee arrangements (AFAs) to their clients relative to the frequency with which the largest 50 offer AFAs.

Across the U.S., the average partner-billing rate was $381 per hour for the 12 months ending June 30, 2013 – up 2.7 percent from the previous year. The practice area with the highest hourly partner rate is mergers and acquisitions, which bills at an average of $630 per hour.

The equation is usually “the larger the firm the higher the cost,” Don H. Liu, general counsel for Xerox Corp., told The Wall Street Journal. Liu reportedly uses marquee law firms for critical transactions, but keeps the company's legal bills down by sending other work to smaller law firms in low-cost locations. 

“Big law firms don’t have a monopoly on talent,” he said.

Among the 15 largest U.S. cities, Philadelphia, Detroit, San Francisco, Atlanta and New York are the five cities where law firm hourly billing rates increased above 2.5 percent in both year-over-year and three-year compound annual growth rate (CAGR). Lagging behind are Phoenix, Boston, Houston, Dallas and Minneapolis.

In recent years, legal departments and law firms have slowly become more creative in finding non-hourly arrangements for more complex work to help their clients manage and predict legal expenses while still providing a comfortable level of profitability for law firms, according to Kris Satkunas, director of Strategic Consulting at LexisNexis CounselLink. Click here to read more on analyzing big data for the details on AFAs.

Contributing Author

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s diverse professional background includes extensive expertise in both print and online media, highlighted...

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