With more law firms in the market than ever before, how can a company choose the right one? By Julia Zhu and Raymond Yang
Since the first Chinese law firms appeared around 25 years ago, their number has grown exponentially. The number of international law firms with a local presence has also rocketed. Around 200 foreign firms now have representative offices in China, while the number of domestic firms has long exceeded 10,000.
How should a company choose among so many suitors? Similarly, what qualities should law firms possess to win the heart of a Chinese client? Over the past three months, China Business Law Journal has conducted a detailed survey on such issues, looking first at the way companies in China select their law firms, and the thought processes and considerations that are taken into account during the process. Second, the survey examines the reasons companies give for changing their law firms.
Third, we examine the differences of opinion among domestic and international businesses in China towards local and international law firms, and satisfaction levels with the service and fee structures of law firms.
Finally, we asked for recommendations of law firms that have provided good service in the range of practice areas.
Where can I find my perfect partner?
When selecting a law firm, where should one start? Our survey shows that recommendations and introductions are the most popular and effective method. The person making the recommendation is not always in the company’s PRC headquarters or international head office. A recommendation may come from a business partner of the company, a chamber of commerce, an affiliated law firm or other professionals. In the experience of most companies, the person making the recommendation tends to be familiar with the law firm in question, and is therefore trusted to give an opinion.
Legal publications, directories and conferences are other common ways of finding law firms. Tian Li of the legal and compliance department of Guangdong Development Bank explains: “Lawyers who publish articles in legal journals usually have a detailed understanding and practical experience of their particular area of expertise. Legal conferences and seminars provide an opportunity for law firms to showcase themselves and gain the confidence of potential clients by their expert discussions on the subject. Webinars also provide some niche practices and experienced lawyers with a platform to show off their skills.”
However, Unilever China Group expressed doubt over many firms’ “halo of awards”, saying “we believe that bigger titles and crowns cannot guarantee high-quality legal services.” Therefore, some companies will use more complex and cautious methods such as inspections and interviews to choose their law firms. Jeremy Chan from Methanex Corporation says that they went through a process of “due diligence through interviews and meetings”. The general manager of Toshiba (China), Takashi Nakayame, believes that face-to-face contact “enables his company to understand how deeply specialized, experienced and client-oriented a law firm is”.
Who makes the decision?
Who is the ultimate decision-maker in the choice of law firms? Our survey indicates that it is the legal department – almost 90% of companies that responded choose their law firm in this way. US aluminium producer Alcoa is one such company: its chief legal officer or general counsel will approve the appointment, after conferring with the lead lawyer for the project in question.
Naturally, decision-making processes depend on the particular internal structure of the company. Almost 10% of respondents reported that their senior management, such as the CEO or vice-president, may be involved in the decision process. If the company is transnational, the approval of the head office overseas may also be required (this is the case for some 14% of respondents). A typical example is Unilever China: its global legal team approves significant and core matters, whereas the local legal team deals with the rest. Boards of directors rarely have a direct say in the choice of law firms – a mere 3% of our respondents belong to this category.
Such a decision process is only to be expected: just as a referee for a sporting event is normally an experienced practitioner of the sport, choosing and evaluating a law firm naturally requires the input of the company’s legal department. In-house legal departments often maintain close relationships with external advisers, so that they can, with the benefit of some inside information, more accurately judge the suitability or otherwise of potential law firms.
Another common approach adopted by international companies is used by United Technologies. It has a list of approved firms selected through competitive tender. When it requires external legal advice, it chooses one firm from the list.
Ability, professional fees and relationship
When choosing a law firm, a company will normally consider the following factors: the firm’s expertise, the cases it has dealt with, the reputation of the firm and its lawyers, the parties’ past working relationship, the firm’s fee structure, efficiency and the time it takes to complete a transaction, the loyalty of its staff, and whether the firm’s partners are easy to reach.
The above factors can be categorized into three types: ability, fees and relationships. According to the survey, of these, ability is by far the most important factor. Price is second, and relationships third. Many respondents to our survey indicate that not only do they put great emphasis on a firm’s abilities, but they are even more concerned with the expertise of the individual lawyer concerned.
Apart from these issues, some respondents also mentioned other factors which influence their decision on law firms. These include the quality of the lawyers’ work, professional ethics, language and communication skills, as well as the firm’s responsiveness to the company’s problems. Some even look at the internal administrative structure of law firms, to see if they are run effectively. A number of companies emphasize the need for law firms to understand their businesses, so that the legal advice they provide will help deliver practical business results, deal with legal “grey areas” and provide answers not just to questions on the written law, but also on how things are done in practice.
Survival of the fittest
Just as there are reasons for winning a war, there are also reasons for losing it. No one wins all the time in this brutally competitive legal market. Law firms must prepare themselves psychologically for rejection.
When asked what factors will result in a change of law firm (or at least for a change to be considered), almost all respondents reply that it is poor service. Broadly speaking, this includes a lack of the necessary legal skills, committing professional errors or careless mistakes, giving poor-quality legal advice, failing to protect the client’s interests, negative working attitudes, inefficiency, and failing to respond effectively and positively to the client’s problems.
A second factor is cost. When a law firm increases its fees without full and open communication with the client, this may be seen by the client as unreasonable. If this is coupled with a perception of low quality of service, the law firm risks being sacked. In short, ability and price are double-edged swords: a law firm can be at an advantage if it excels in these two areas, but equally a slight mistake here may cost it the client.
Companies tend to continue to work with their existing law firms. However, according to DSM China’s general counsel, Catherine Wang, when a company needs expert advice and knowledge in a particular area, but its existing law firm cannot satisfy that need, the company will seek it elsewhere.
The abilities and charisma of individual lawyers can, sometimes, attract clients too. When a partner or core lawyer who has been working well with a client leaves the firm, or the firm merges with another or is dissolved, clients will also consider changing firms. “This is particularly the case when the firm can no longer provide a legal service of the same quality as before,” states Tiki Dare, managing counsel at Oracle.
A law firm’s professional ethics and trustworthiness are the foundations of a client’s trust. If there are any problems in this area, such as, in the words of Kevin McMurray of USANA, “churning or trying to do additional ‘value-added’ work without the client’s prior approval, and then billing for it”, the law firm will again be removed.
Advantages of Chinese law firms
Generally, companies will choose Chinese firms to deal with Chinese legal matters. Some companies use both local and foreign firms, but the local firm will lead, with the foreign firm playing a supporting role. Only rarely will a company use a foreign firm alone to deal with local matters. This situation is caused mainly by the restrictions on foreign firms and lawyers practising local law. This gives local firms a natural advantage over foreign firms.
Most companies which choose local firms declare themselves satisfied with their choice. Judy Xue of US manufacturing company Lear says she is impressed with the “lawyers’ professionalism, high-quality expertise and timely service”. Chan of Methanex Corporation further explains: “the PRC lawyers are knowledgeable in the areas of domestic law, policy and government. They are trained in the West and have practiced in their home country for some time so that they bridge both cultures and business practices.” The regional general counsel of Chartis Insurance, Sharon Chen, believes that “the fees charged by local firms are very reasonable”. However, Torsten Peters from Sasol mentions that the fees of certain local firms, such as Junhe Law Offices, are already comparable to those charged by foreign firms.
Of course, a few companies believe that the service provided by local firms is unsatisfactory. For instance, Toshiba (China) complains that “some firms are below our expectations due to a lack of communication”, while Richard Mosher from MSN is barely satisfied with the performance of some local Chinese firms, the reason being that they demonstrate a “failure of competence” in specialization, cost-effectiveness or responsiveness.
One company which employs both local and Chinese firms in conducting its local legal matters is Brazilian mining company Vale. Its in-house counsel, Carl DeLuca, has high regard for both kinds of firm: “The quality of legal counsel has generally exceeded expectations. They have effortlessly bilingual staff, are hard-working and are adept at navigating the local environment and explaining local laws and non-legal considerations to foreign lawyers.” A minority of companies are negative towards both local and foreign firms. SCA’s Wesley Chiu says that some firms do not want to take responsibility or risk, and so give legal advice which “tends towards the theoretical and therefore is not very useful in practice”.
Can a foreign lawyer do a better job?
When a company has to choose between a local and foreign firm for its Chinese legal matters, inevitably it will compare the two in detail. Often it will find very little difference between the two. Nevertheless, the two kinds of firms generally differ in their fee structure and professional knowledge.
Local firms usually charge lower fees than foreign firms. Dai Dejian of Changhong Electric points out that foreign firms normally charge on an hourly basis, whereas local firms often charge a project fee. As a result, in the words of Chan from Methanex Corporation, “the fees charged by local firms are a lot more competitive than foreign firms”. May Li, general counsel of Unilever China, says, “if we can find a local lawyer who has the same experience in the requisite areas, the local lawyer’s charges are usually a lot more attractive”. Although Vale employs both local and foreign firms, DeLuca prefers local firms for their cheaper prices: “the costs for PRC firms are generally lower than we are used to paying back home. Costs for international firms, however, are consistent with UK or US rates, so we have been moving work away from those firms to PRC firms.”
On the whole, foreign firms may still have the edge in professional knowledge and expertise. While companies may complain about foreign firms charging higher fees, they often, nonetheless, praise the quality of service they provide. For this reason, some companies insist on using foreign law firms. For example, Canadian company Mackie Research Capital recommends top-tier Canadian firms, including Blake Cassels & Graydon, Stikeman Elliott, Osler Hoskin & Harcourt and Bennett Jones. Compuware Corporation uses two US firms to deal with its China-related matters: Armstrong Teasdale and Fredrickson & Byron.
Some companies criticize local firms and lawyers for an uneven quality of service between firms, whereas foreign firms are generally of consistently similar quality. InBev’s Tom Yu states: “Foreign firms have a greater attention to detail, which sometimes means they become too bogged down and lose the main point, but they have a better understanding of the business. PRC firms are more flexible, but their understanding of the business is not as good, and cannot quite appreciate the detail.” Zhao Haiqing of Avon also says “foreign firms are more trustworthy, and their billing is clearer and better justified”. Janet Jun Lin of DBS Bank puts it succinctly: “the professionalism of PRC firms, as compared to their fee structure, has room for improvement”.
Of course, one cannot generalise. Some respondents emphasized that PRC firms are irreplaceable in certain areas. Sonny Cave of ON Semiconductor Corporation prefers PRC firms because “they are more capable of answering complicated legal questions and providing helpful advice under Chinese law, especially when the issue concerns ‘grey areas’ where there is no direct legal authority or precedent”.
Combination of PRC and foreign legal advice
Almost all of the respondents to the survey will engage foreign firms when they start transnational business activities. Half of them will engage both foreign and local firms simultaneously. Law firms which have a global presence seem to be a natural choice, as they can provide a seamless trans-national service. Only a few respondents rely solely on PRC firms for their international business activities.
International law firms mirror their clients’ investment and development needs in their own expansion plans. Many foreign law firms have followed their clients into the China market. Meanwhile, the international financial crisis has challenged Chinese enterprises out of their usual conservatism and onto the international stage. PRC firms may be good at local Chinese matters, but there are only a few which can truly be described as international and have international capabilities. However, some PRC firms have already gained the approbation of international clients. Todd Roeser of Guardian, who has previously engaged Junhe Law Offices, indicates that “the PRC firm we use for international legal issues is very knowledgeable”.
PRC and foreign firms complement each other
In seeking international legal advice, some companies use only the PRC representative offices of foreign firms, whereas others use only the foreign offices of such firms. As between these two, respondents are generally more complimentary of the former. Dow Corning Corporation says that the lawyers in the PRC representative office of its foreign firm are “professional, with good communication skills and provide excellent service”. Steven Lyverse of Hillerich & Bradsby says “lawyers working in the PRC offices of foreign firms are experienced in both local and global issues”. On the other hand, although more than 50% of respondents who engage only the foreign offices of foreign firms are satisfied with the service they have received, they also point out some unsatisfactory areas. For example, Joseph Nauman, executive vice-president of Acushnet, mentions that his company “does not always get the kind of attention it would like”, although he adds that that could be because “the matters are usually not huge ticket issues”.
Of the respondents who engage both local and foreign offices of foreign law firms, over 70% say that they are satisfied with the service. Royal Bank of Canada senior counsel Esmond Sin comments that “they are usually experienced in handling the type of matter instructed; they understand the needs and concerns of international financial institutions, and have good expertise in both Chinese and international law”. Aaron Gothelf, in-house counsel for international trade at Tyco International, agrees: “the legal advice we get is generally clear and completed within a reasonable timescale”. Of course, there are comments to the opposite effect. Mosher of MSN believes that certain foreign firms “lack the ability to deal with some areas of law, are not cost-efficient and are unresponsive”. Legal executive of Capita- Land, Dai Peng, says that these firms “lack professionalism and a respect for the job”. Timothy Wong, 3M’s legal director for the Asia Pacific region, goes further: “Some matters are handled quite efficiently by some global firms, with cost savings and efficiency being achieved by their having multiple offices and being familiar with the laws in multiple jurisdictions. In other matters, the foreign offices of these same firms do not appear to have any close connection. To the client, it is as if they are different firms, thus adding no benefit whatsoever to how matters are being handled.”
Among the companies which hire both foreign and local firms to deal with international matters, many are Chinese enterprises. The reason for this, as explained by Johnson & Johnson’s Yu Bangqing, is that the two can “complement each other”.
Listen to the companies
Respondents offered three major suggestions as to how law firms could improve their services and client satisfaction. First, companies would like more reasonable fee arrangements. Manpower’s director of global legal affairs, Laura Jamison, suggests that law firms should have “flexibility in determining the best billing arrangement for particular situations”. Cave of ON Semiconductor is of the opinion that “the biggest area of improvement for outside firms is to be more precise and accurate on their fee estimates and subsequent communication with the client on how the fees are mounting up during the course of the transaction”. Deputy general counsel, international, of Armstrong, Mark Willis-Jones, believes that “the Chinese offices of international law firms should be 20% cheaper than they currently are”.
The second suggestion concerns the internal structure of law firms. Some companies recommended that partners and senior associates should be more involved. Liang Fei, legal counsel at Nokia Siemens Networks, suggests that “law firms should have a sufficient number of senior associates to deal with and manage projects, so as to avoid the client being unable to get hold of anyone if the partner is busy”. Skype Pharma’s general counsel, John Murphy, thinks that law firms “lack sufficiently good junior lawyers to back up the partners, so companies end up paying to increase the knowledge and experience of less qualified lawyers”. Wong of 3M is of the same opinion, saying that “firms seem to like to use our matters to train junior associates, which can be inefficient”. Sin of Royal Bank of Canada suggests “choosing appropriate levels of lawyers to form the team to handle the matter, so that the lawyers’ fees can be lower, and they can better understand our needs and provide practical suggestions to address our issues and concerns”.
The third area relates to quality of service. Companies want their lawyers actively to communicate with them, and to ensure that the advice they give is better aligned with the companies’ strategies. Gothelf of Tyco International says law firms “need to understand the client company so they can give practical advice that is relevant to the company and the industry and be better able to spot issues that could affect the company. Outside counsels tend to give advice in a vacuum if they don’t understand the client; firms need to avoid giving impractical advice that is useless”. Both SCA’s Chiu and Zhao of Avon are of the same opinion. Aside from asking firms to give more practical advice, companies also want legal advice to be more comprehensive, not limited to just legal advice. DeLuca of Vale says that “more business advice is always welcome – not just legal advice, but also advice about how things may work differently in China, and not being afraid to offer suggestions about the local political and cultural environment”.
TCL’s Wu Hao hopes that “firms can work more closely on a strategic level with clients, be more involved in the production and business of companies, and not limit themselves to just the case or transaction in question”. Huang Deqi, assistant to the general counsel of Jinjiang International Holdings, believes that law firms should “proactively and regularly offer relevant advice about its business”.
Some companies suggest that law firms should aim to solve problems with their legal advice. Legal executive at Capita- Land, Dai Peng, suggests that they should have a deep understanding of their clients’ business so that they can offer “solution-based advice”, and not just pure legal opinion. Intel (China)’s general counsel Wang Hongbin expresses similar opinions, and points out that legal advice should “include practical advice and not just pure theoretical explanation of the law”.
In terms of the way legal service is delivered, Tian of Guangdong Development Bank advises, “in each case, law firms should have specific staff to take responsibility for and manage the development of the project, share news about the industry and, based on the practicalities of the project and their experience, provide us with timely advice on the risks about the industry and project”.
PRC firms win clients’ praise
Of the general practice PRC law firms, Junhe Law Offices is highly recommended by the surveyed companies. Wang Nan, Asia-Pacific vice president and senior counsel of the Marriott Hotel Group, is of the opinion that Junhe is “a full service law firm which can offer legal advice in many areas”. Cave of ON Semiconductor also praises Junhe as a firm which is “very up-to-date with new legal developments in China, and also well-connected within the business and regulatory communities. Their billing rates are also satisfactory.” Todd Roeser of Guardian makes special mention of Junhe lawyer Richard Yao, who is “a very experienced corporate lawyer with excellent skills in M&A”. In addition, Junhe’s litigation practice and its banking and tax practice have, respectively, impressed Chester Beach of United Technologies and Dow Corning’s Mori Suely.
Roughly the same number of companies recommend King & Wood and Fangda. Lei Yingqing of Panasonic (China) believes King & Wood is “thorough in their analysis of new law”. Dai of CapitaLand comments that King and Wood has “more experience in M&A and litigation, aims to solve problems and is familiar with the operations of international companies”. Chan from Methanex Corporation agrees with this, and adds that King & Wood is “good at commercial legal matters”. Alcoa assistant general counsel Max Laun describes King & Wood as “a firm which is good at local Chinese work”.
Li of Unilever says that Fangda Partners “reverts very quickly to clients’ questions and requests, their lawyers have good ethics, and their English is also good”. Dow Corning’s Suely also believes that Fangda is trustworthy and commendable in all areas, including litigation. Xue of Lear gives the following reasons for recommending Fangda: their lawyers love their jobs, have a high professional standard and deliver their advice on time. She also makes special mention of Fangda lawyer Zhou Chuanjie. Fangda is also recommended by USANA, DBS and Vale.
Shanghai International Group recommends both Llinks Law Offices and AllBright Law Offices, both of which are headquartered in Shanghai. In recommending Llinks, Lei of Panasonic says the firm is “down-to-earth and efficient”. When recommending both Llinks and Hankun Law Offices, Wang of DSM China says that their services are very good, though “it would be even better if they were more proactive”. Typical praise for AllBright Law Offices comes from Willis-Jones of Armstrong, who says that they are “very efficient and responsive with excellent English language drafting skills”. Apart from AllBright, Shanghai Zhangjiang (Group) thinks that Jin Mao Partners is also a firm worthy of recommendation.
John Zhao, senior legal counsel (China region) of Shangri- La Hotels rates Zhong Lun Law Firm, King & Wood and Fangda as commendable, and says all of them are “giving satisfactory service at a reasonable price”.
United Technologies sings the praises of Global Law Office, saying that “it provides excellent legal support in the company’s operations”. Global lawyer Zhang Xin is highly recommended by Sasol’s Peters, who says he is an “outstanding” lawyer.
Banc Tec’s Bob Robinson recommends Haiwen & Partners, whose lawyer Lu Zhifang is said to be a “much respected and admired” person.
Wang of Intel says Jincheng & Tongda Law Firm, Kangda Law Firm and Junhe Law Offices are all worthy of recommendation.
Toshiba (China) recommends Broad & Bright and its lawyer Feng Yao, believing that the firm “has expertise and experience in government-related matters”. Zhang Jiachun of East Associates is also recommended by Toshiba, which says that the firm as a whole “has the expertise and experience in litigation”.
JunZeJun Law Offices and Kingson Law Firm are recommended by some respondents. Reasons for recommending JunZeJun include that its lawyers have knowledge in multiple disciplines such as government administration, finance and securities and judicial systems, with plenty of resources and professional legal teams. Kingson’s main practice areas are seen to be M&A, restructuring and insolvency.
In intellectual property, many firms and IP agents have been named. Of these, Shanghai Patent and Trademark Office comes highly recommended by senior Microsoft attorney Jim Banowsky, who thinks that the firm is “very responsible, professional and their fees are reasonable”. The chief intellectual property counsel in American company Trimble, Roger Kennedy, recommends Zhongzi Law Office. Beijing’s Insight IP and its trademark lawyer Pearl Gao are recommended by Trek Bicycle. Acushnet highly recommends Beijing’s Wan Hui Da Law Firm and Intellectual Property Agency for “their IP and brand protection work. They have the requisite connections and expertise. They are also very client-focused and easy to work with. Although not the cheapest PRC firm, they still represent good value compared to multinational firms.”
Manpower gives all its China-related work to one PRC firm, Hylands Law Firm, and has a long-running working relationship with its lawyer Lawrence Shu.
International matters: where foreign firms shine
In the international investment arena, most companies recommend international law firms. However, unlike the case of China-related work, where a few top-tier PRC firms dominate the market, in international work many firms were recommended.
Top-tier firms from the UK and US remain the first choices of many companies for their transnational legal matters. Royal Bank of Canada believes that, alongside top-tier PRC firms, the so-called “magic circle” from London are also good choices. Skype Pharma gives all its China-related work to Simmons & Simmons, because “the firm has a good understanding of the area”. A number of companies recommend the magic circle firms, such as Linklaters, Freshfields and Clifford Chance. This is because, as one respondent said, companies value these firms’ “better understanding of Chinese matters, practicality, being good at foreign direct investment, M&A, and the ability to provide an all-round service”.
American companies such as Dupont, Avon and Alcoa are more likely to recommend what are known as “white-shoe law firms” in America, being top-tier firms such as Shearman & Sterling, Sidley Austin, Skadden, White & Case, Hogan Lovells and O’Melveny & Myers. According to Alcoa’s recommendation for O’Melveny & Myers and Shearman & Sterling, these firms, like the English magic circle firms, have experience and capacity in dealing with inward investment into China. On top of this, these firms have a natural advantage in that they have “detailed knowledge of US laws and business protocol”. When recommending White & Case and its lawyer John Leary, Hillerich & Bradsby added that, as the American economy is second to none, it gives American law firms great benefits in the development of their practices.
International firms have different strengths. Dow Corning thinks that Squire Sanders & Dempsey and Hogan Lovells are better at regulatory work, whereas Baker & McKenzie deals with Dow’s Hong Kong employment matters. Avon and Canam Steel also recommend Baker & McKenzie.
Rouse’s reputation in the field of intellectual property is well-known. In our survey, Rouse comes highly recommended by many. DeLuca at Vale says that Rouse is “excellent” for IP work. North Asia regional IP counsel at Diageo, Lawrence Wong, says “Rouse is definitely recommended for large-scale IP disputes because of their experience and expertise”.
Hylands Law Firm comes up again in the recommended list of firms for international work. Methanex Corporation recommends it for its anti-dumping and international trade work. Another recommended PRC firm is T&D Associates, named by DSM (China) for its ability to “provide timely and high-quality advice,” and its willingness to “give free advice on certain matters upon request”.
Baker Botts, Morrison & Foerster and Troutman Sanders are all on the recommended list of companies such as Dupont and AVX. United Technologies Corporation highly recommends Herbert Smith’s Simon Meng, and will “normally engage the firm for larger transactions”.
If law firms qualify to become part of alliances such as Lex Mundi and Meritas, this in itself can be an indication of their capability and reputation. Therefore, some companies have indicated that, when they are looking for a firm for their international work, they will look for and recommend firms within these alliances.
To charge or not to charge
Canam Steel vice-president Ron Peppe is not alone. In common with almost all of the respondents to the survey, he believes that foreign law firms are too expensive. Indeed, this view is common, whether in relation to PRC representative offices or the foreign offices of international firms.
In particular, among the companies which use only the foreign offices of foreign firms, only 30% believe that they get value for money. Wu Hao of TCL and Jennifer Liu of Cooper Industries both think that foreign offices of foreign firms are too expensive. Austar’s Yuki Ji observes that “although foreign firms are more professional, they are also more expensive”.
Chester Beach, associate general counsel of United Technologies, hires only PRC representative offices of law firms. He says that “international firms are very expensive as they charge on an hourly basis, but we are beginning to succeed in moving to alternative fee arrangements, or otherwise promoting efficiency in how matters are handled”. Of course, there is a wide discrepancy between the rates of different foreign firms. Carl DeLuca of the Brazilian mining company Vale says that “American firms charge the highest and have high associate turnover rates, thus reducing the quality of their legal service. On the other hand, Canadian firms are cheaper and their associate turnover rate is lower. We get more partner attention, and so much better value.”
PRC firms are not only cheaper, but their abilities and language skills are also steadily improving. Todd Roeser, an attorney at Guardian, believes that “PRC firms who are in the big cities in China and have international capabilities have much more competitive rates than their international firm counterparts, and still provide knowledgeable attorneys. Admittedly sometimes language is an issue, but with patience this problem can be overcome”.
Charging by the project or by the hour
Charging a fixed fee for a project instead of an hourly rate, or even a fixed project fee with an added discount, is naturally a more attractive alternative for companies than being billed by the hour.
Firms which are born and bred in China may not have the tradition of charging by the hour, and may therefore be more flexible in their charging structures. Beach of United Technologies says “we are very satisfied with our Chinese firms as they accepted our suggestion for alternative fee arrangements, adopting a fairer and more efficient way of billing than hourly billing”. The PRC representative offices of foreign law firms are often willing to adopt a fixed fee arrangement to suit a client’s preference. However, their foreign offices are more likely to stick to their tradition of hourly charging and refuse to contemplate other arrangements.
Companies do not always oppose an hourly rate. Peppe of Canam Steel states that “although we prefer fixed fees, under certain circumstances we understand the need for hourly billing”. However, most companies criticize or even refuse to accept hourly billing, mainly because it comes across as not being transparent. Huang Weilin of Giti Tire Company worries that “lawyers may falsely record their hours and thus inflate their fees, and there is no legal mechanism whereby one can challenge the reasonableness of the amount”. John Zhao, senior legal counsel (China region) of Shangri-La Hotels, and Wu Hao of TCL, both point out that, as client companies may be unfamiliar with foreign laws, “we feel that we have less control over what items should be billed”.
Many companies are keen to agree fixed fee arrangements rather than hourly rates. As Timothy Wong, legal director (Asia Pacific) of 3M indicates, “project-based billing is suitable for some matters, since it creates certainty as to cost and provides an incentive for the firms to be efficient”. The legal officer of General Motors (China) Investment, Vickie Song, believes that this method of billing is more flexible and helps control costs. Roeser of Guardian therefore suggests that although he is not opposed to hourly billing, “a project rate would have been better for larger projects”.
Some companies agree to a combination of hourly billing and project fee billing, to achieve a balance between the interests of the company and the law firm. There are even companies which adopt a novel approach – monthly billing. For example, the north Asia regional IP counsel at Diageo, Lawrence Wong, believes that a monthly retainer provides more clarity.