Lawyers are feeling the pinch as clients weighed down by the pandemic push for lower legal fees. Vandana Chatliani reports
Businesses worldwide ground to a screeching halt as covid-19 lockdowns paralyzed commercial activity for much of 2020. The pandemic caught governments, businesses and individuals off -guard, throwing India and the rest of the world into months of dizzying uncertainty and danger. Companies faced with a resource crunch looked to cancel or postpone deals, while those embroiled in litigation had no choice but to wait for the courts to reopen.
The damaging effect of covid-19 on legal spending is unsurprising. The pandemic has throttled various industries including tourism, hospitality, travel and luxury goods, and those struggling to keep afloat have been keen to slash legal budgets wherever possible.
“The majority of law firms are facing challenges such as fewer inquiries, disturbed operations, stalled cashflow, increased fixed expenses, risk of closing the business, and stress and low morale,” says Manoj Kumar, the managing partner of Hammurabi & Solomon in New Delhi. “Covid-19 has impacted not only the operations and the functioning of the bar and benches, but also various other stakeholders of the legal marketplace.”
Priti Suri, the founder and managing partner of PSA Legal in New Delhi, says in 2020, “everything has been topsy turvy and, honestly, nobody wants to pay the asking rates, unless you are acting on billion-dollar mandates. Even when we send out proposals, we find we have to renegotiate, depending on many variables, be it scope or budget or other considerations. Everyone wants fixed fees.”
Praveen Agarwal, the founding partner of Agarwal Jetley & Co in New Delhi, says that covid-19 has adversely impacted revenue, “with billings down by at least 30% this financial year”.
Litigation lawyers have suffered the most. While many courts eventually upgraded their technology, made digital filings possible and adopted virtual hearings, the actual number of hearings scheduled was substantially lower than expected. One key reason for this was the need to prove the “urgency” of the matter. As lawyers soon discovered, the benchmark for urgency was unclear, subjective and almost unattainable in most cases.
Court closures have meant “fees for litigation have evaporated, to my disappointment”, says Nitin Sen, the managing partner of Lexcellence, an intellectual property (IP) boutique in New Delhi.
While Sen recognizes that IP firms have been lucky, since online prosecution work was already underway long before the pandemic, he points out that fora such as Delhi High Court and the National Consumer Forum have simply released a list of adjournments for the majority of cases. “They take up some cases through videoconferencing,” says Sen, referring to the National Consumer Forum, “but that’s a tiny fraction of the regular number. It’s somewhere between one to six cases a day (per court – there are six) against 50-80 each in normal times.”
Aaron Solomon, the managing partner at Solomon & Co in Mumbai, says litigators “bore the full brunt of the complete lockdown of the justice delivery system in India” because courts were only prepared to hear urgent matters. “On the contrary, the situation was exactly the opposite for corporate lawyers, where work and billable hours increased due to the work-from-home module,” he says.
Clients are trying their best to navigate these changes and reorder their priorities to minimize future disruption. “The statutes pandemic; it has certainly exacerbated the situation, but is by no means the main cause. Law firms have faced fee pressures for years, due to a number of factors including increased competition posed by breakaways and new law firms, stronger in-house legal teams, the undercutting of rates by firms of all sizes, and hard bargaining by clients.
Abhishek Dutta, the chief executive partner at Aureus Law Partners, says it is not just larger law firms that have reduced their prices dramatically on account of covid-19, but also the “big four” accounting firms, “thereby leading to a severe work crunch for smaller firms like ours”.
A moderate decline
Amid the turmoil of this global healthcare crisis, we present the results of our 14th annual billing rates survey. The survey is based on an analysis of 72 participating firms, of between two and 375 lawyers, from Ahmedabad, Bengaluru, Chandigarh, Chennai, Kochi, New Delhi, Hyderabad, Mumbai and Tiruchirappalli. We highlight our findings through a series of infographics throughout this article.
In the past 13 years, most of India’s highest-ranked law firms have refused to reveal their billing rates, citing privacy and confidentiality. Others point out the discrepancy between published rates and actual fees charged.
“It’s interesting to see various law firm partners highlighting that there is tremendous pressure on legal fees,” says the senior partner at a law firm in Delhi, who spoke on the condition of anonymity. He notes the squeeze in clients’ budgets in the current economic situation and points out that, despite this, firms continue to submit only their “rack rates”, which have increased over the years.
“The reality is completely different and the actual rates offered are significantly lower, or at best very few clients are actually paying the rates mentioned in the survey,” he says. “I wonder if it’s vanity to quote that their firms are charging these rates?”
Ajoy Halder, a partner at Halder & Associates in New Delhi, offers a similar perspective on the inconsistency of legal fees, not just across firms, but within them. “The Indian market may be a bit immature in terms of pricing legal work,” says Halder. “There may not be a uniform billing policy for most firms in India. Therefore, within the same firm, billing rates can be very high or low for the same kind of work, which will usually depend on the client, the amount of work the partner has at that point in time, etc.”
Ameeta Duggal, the founding partner of DGS Associates in New Delhi, notes huge variations in the cost of legal services across disciplines. “There is evident disparity in the prices being charged for legal work … be it litigation, mediation, arbitration or transaction practice,” she says. “There are small startup firms that are charging reasonable hourly rates, but with an unreasonable number of hours, and vice versa.”
Firms also frequently offer different rates to domestic and foreign clients, the former enjoying lower billing in rupees, and the latter paying a higher fee in US dollars.
Nevertheless, India Business Law Journal’s survey continues to offer a starting point for legal fees, accounting for variations caused by global and local economic strains, market pressures, the launch of new firms, larger in-house teams, and investor sentiment. As always, the figures quoted must be viewed carefully, as partners and in-house counsel point to a continuing trend of discounts, fixed fees and other pricing models that may radically reduce final invoices.
The inclusion of Lakshmikumaran & Sridharan in our survey indicates a commitment towards transparent and best-practice billing among elite law firms. We hope their participation inspires others to share their rates in the years to come.
While the fee schedule offered by Lakshmikumaran & Sridharan gives us insights into the pricing models at larger firms, our survey best captures the trends across mid-sized and smaller firms, which make up the majority of participants.
Unsurprisingly, given the current climate, billing rates decreased across all categories, with the exception of junior associate, which remained the same as last year, at an average of US$136 per hour. The average hourly rate for a lawyer fell by 4%, from US$257 to US$247 per hour. The sharpest decrease appeared in the junior partner category, where the hourly fee dropped 4.7%, from US$255 to US$243.
The hourly rate for a senior associate and a senior partner reduced by 3.6%, with the former falling from US$190 to US$183, and the latter plunging from US$332 to US$320 per hour. Managing partner rates were down a modest 2.5%, from US$391 to US$381 per hour.
Covid-19 may not have initiated the call for lower, and more importantly, predictable fees, but it has certainly cemented this expectation.
“Owing to covid-19, we have seen some atypical pricing in the Indian market, where firms slashed rates in order to get or keep work,” says PM Thimmaiah, a partner at MD&T Partners in Bengaluru. “Billing practices have been influenced by keeping rates reasonable, transparent and prompt,” he says.
“Making clear the terms and quotes for billing upfront helps clients to understand the type of work that would be involved, and to set expectations. Further, timesheets are added to provide clarity to the line items in the bill, so that there is further transparency and clarity.”
Firms across the board recognize the need to develop attractive fee packages beyond the hourly billing model in order to retain clients. These include flat rates, blended rates, milestone-based billing, retainers, stage wise fees and lump-sum fees.
Shardul Thacker, a partner at Mulla & Mulla & Craigie Blunt & Caroe in Mumbai, says his firm is always open to discussing alternative fee structures. “We have adopted various models in the past, depending on the complexity and nature of the work involved, the urgency required, including but not limited to retainers, lump-sum fees for an identified scope of work, blended rates, and hourly rates with capped fees,” says Thacker. “To several of our regular clients, as also to clients who give us volume work, we have given discounted covid rates during the present pandemic.”
Rajesh Ramanathan, a partner at Factum Law in Chennai, says firms have no other alternative but to rethink hourly billing. “Fixed fees save time, energy and effort in maintaining the hours of work, which always is contentious,” he says. “There could be more focus on executing the work, than on explaining the billing.”
Manisha Singh, a partner at LexOrbis in New Delhi, explains that IP service providers have to deal with another layer of fee pressure when working with public sector or government companies with large research and development capabilities. They empanel legal advisers based on a bidding/request for proposal process, which results in the further lowering of fees. “Except for the high-end advisory or big-ticket litigations, which can give rise to multiple proceedings, we have converted almost 75-80% of services [so they are] chargeable under a flat-fee structure,” says Singh.
The private equity sector has also taken a hit due to a rise in undercutting by law firms, says Talha Salaria, the founder of Lawyers at Work in Bengaluru. “Venture capital and private equity work has become commoditized, and therefore attracts low fees, she says. “M&A transactions attract better fees.”
Seema Jhingan, a partner at LexCounsel in New Delhi, notes a marked trend towards cost-effectiveness as “clients increasingly seek pre-approved assignment-based fees, including the ones who have worked for years on an hourly basis”. Jhingan says that “most law firms are being compelled to offer competitive and innovative billing models to retain clients”, but that they are also “charging 25-50% in advance to avoid payment delays or non-payment in the worst-case scenario”.
She adds that price sensitivity is also high because of larger in-house legal teams. “Outsourcing for general corporate commercial work is reducing and work on specialized areas is more forthcoming.”
Krishnava Dutt, the managing partner of Argus Partners in Mumbai, agrees with this assessment. “India is a very price-conscious market for general work,” he says, “however, for any advice that is highly specialized and requires expert advice, clients are willing to spend.”
Opportunity in crisis?
Although litigators and transaction lawyers focused on struggling industries have seen shortfalls during the pandemic, others have experienced stability, and perhaps even prospered to a degree.
Sectors such as retail may have suffered, but new lifestyle patterns have provided a springboard and hope in other areas including the medical, pharmaceutical, e-commerce, technology, education and health sectors.
Although the covid-19 crisis is far from over, Gopika Pant, the managing partner of Indian Law Partners in New Delhi, offers an optimistic view based on rising interest in distressed assets, reorganization and recovery. “Markets have started to stabilize now and we do not expect any major effect on law firm billing rates going forward,” she says. “Due to the covid-19 pandemic related disruptions, we expect major worldwide restructuring deals to take place, which will consequently increase the cross-border deal flow substantially.”
Sumes Dewan, the managing partner at Lex Favios in New Delhi, shares a similar sentiment, noting that the transactional and advisory practice is growing as clients seek advice on specific issues of law, and deal with new challenges. “Due to covid-19, the demand for equity and debt has grown tremendously and we are seeing quite an upswing in transactions, both on the equity and debt side,” he says.
“As a result of lower valuations, deals have become attractive for investors. Practices such as private equity, debt finance and insolvency will see growth, and the increase in work will compensate for the impact on billing rates.”
Others, such as Shrikant Hathi, the managing partner of shipping and disputes specialist Brus Chambers in Mumbai, believe returns to normal billing may take longer. “Once the world is normal we expect a bounce back, and the billing rates to move upward, but I personally feel this may take a year or two,” says Hathi.
Until then, law firms may decide to employ different strategies to recover their dues and improve payment processes.
Gagan Anand, the managing partner at Legacy Law Offices in Chandigarh, notes, for example, that several law firms have enlisted themselves as micro, small and medium-sized enterprises (MSMEs) under the MSME Act. Under the act, “clients possess an obligation to declare their unpaid fee amount to the government of India if it is not paid within a certain time period,” says Anand.
On the procedural side, as digitization becomes more commonplace within courts and across other legal functions, law firms and clients will be encouraged to follow suit. Sonal Kumar Singh, the managing partner at dispute resolution boutique AKS Partners in New Delhi, predicts that “physical billing will be ex- tinct” in the next 12-24 months. “Clients who were particular about physical copies of the bills are now accepting e-copies with e-signatures,” says Singh. “The vendor management system will be more robust.”
Kumar, of Hammurabi & Solomon, agrees. “Companies will adopt a more robust and multifaceted IT system for vendor management, while more law firms will adopt software to automate the entire process of invoicing,” he says. Despite the promise of improved systems and processes, there are still issues to address, especially as the current healthcare crisis continues.
Sen, at Lexcellence, worries about the fate of lawyers whose earnings have been dampened by the pandemic. “I can’t express how much I feel for the vast majority of my comrades who have been hit hard, and whose rent/EMIs [equated monthly instalments], daily expenses and school fees must still be paid every month,” he says. “Things have to be normal so that every last lawyer gets some work/fees, which is not the case currently.”
Sen believes a vaccine is crucial for the legal sector to operate efficiently and effectively, without spreading the infection. “After railway stations and airports, courts are the most crowded of public spaces in India, posing a particularly difficult challenge to public health,” he says. “Given that courts are potentially ‘super spreader’ sites, which can potentially overwhelm a city’s hospital bed capacity … one of the sectors most reliant on a vaccine is the legal system and those who work in it and access it.”