As competition heats up, can law firms avoid low-cost chaos? Richard Li reports
With the economy under pressure and slowing, the legal departments of many enterprises are keeping a closer eye on their budget control, resulting in fierce competition within the legal services market.
In response, some law firms have reduced their service prices, while others that believe low-price competition is harmful to the long-term development of the profession are tending to help clients control budgets by more flexible billing methods, and are winning premium clients by improving their own strengths.
While most in-house counsel we spoke to agree that they are facing budget constraints, quality of service is still important to them. A balance between cost and quality is the real decision they have to make. Most of them tend to negotiate a flexible billing method with the law firm, rather than the traditional hourly billing method.
In this year’s survey on the billing rates of Chinese law firms, our analysis of legal fees is based on 29 firms, ranging from niche outfits to full-service practices. We are highlighting our findings through a series of infographics, and present the full table of billing rates at the end of this article.
Our survey offers a snapshot of legal billing trends in China’s vast legal market. Although several law firms declined to reveal their rates for their own reasons, the law firms participating in the survey are varied in size and areas of practice. While the results and findings are interesting, the purpose of this article is to encourage more firms to be transparent with their legal services for the ultimate benefit of their clients and the wider legal market.
The survey results, meanwhile, reveal a major gap among law firms with the prices of their legal services. For example, the hourly rate for a junior associate ranges from RMB800 (US$113) to RMB2,500, while the hourly rate for a senior partner ranges from RMB2,500 to RMB5,000.
There are a variety of alternatives to hourly billing. In the survey, we find that, in many law firms participating, the percentage of legal work billed by hourly rate is not more than 50% (as shown in our table). Law firms are generally adopting flexible billing methods to cater to the differing demands of clients. The common alternatives to hourly billing include fixed fees (or fixed fee range), capped fees, and contingency fees. The legal work may also be billed by assignment, or in proportion to the amount of the subject of mandate.
Law firms may also combine their billing methods. Xu Guojian, the Shanghai-based managing partner of Boss & Young, says his law firm may charge the clients a separate fee or a flexible combination of fees. “We give our clients the freedom to choose the billing methods that best suit their demands without breaking current laws and regulations,” he says.
For litigation cases, more law firms are billing their legal work by “basic fees (fixed fees) + contingency fees (success fees)”, that is, the client will make an advance payment first and the lawyer will charge a sum of money in proportion to the amount of compensation the client receives (or in a fixed amount) when the periodical result is achieved or the case is concluded. “This billing method is advantageous, for it fully arouses the initiative of the lawyer to achieve a satisfying result and relieve the clients of the burden of legal fees in the preliminary stage,” says Yuan Xiaobin, the Chongqing-based chairman of the board at Zhonghao Law Firm.