India Business Law Journal’s fourth annual billing rates survey reveals rising hourly rates and growing demand for alternative fee arrangements
Vandana Chatlani reports
Over the last few years, lawyers, some sympathetically others less so, have reduced their fees as clients coped with the pressure of cutbacks. Now, as economies rebound, companies are getting back on their feet. However, the tough negotiation over legal fees continues.
The result is bold statements like: “Pay us what you think the work was worth”, which is one of the payment options offered by CMS Cameron McKenna in a recent report it published on legal fees. India’s law firms would probably find such a proposition laughable and question if such an idea could work in a society where haggling is the norm.
Nevertheless, CMS Cameron McKenna’s report, entitled The future of fees: your route map to value, suggests reforming billing structures is a key priority and one that clients take very seriously. According to senior partner Richard Price, “It’s not always about being innovative to be cheaper; it’s often about being innovative to add value in a precise way that matters to a particular client’s organization.”
It is these issues that India Business Law Journal’s fourth annual billing rates survey set out to address. In what is our largest survey to date, we find that law firms are increasingly being forced to grapple with demands for innovative fee arrangements.
A total of 40 Indian law firms agreed to participate in this year’s billing rates survey, up from 37 firms last year and 25 when the survey was first conducted in 2007.
It is important to note that while insightful and revealing, the findings are not necessarily representative of the legal market as a whole. More than 200 law firms were invited to participate in the survey, but the results are based solely on the 40 firms that consented. Notably, a third of participants are IP boutiques. Independent advocates, who make up the majority of lawyers in India, were not invited to participate, neither were law firms that do not handle significant corporate matters or represent foreign clients. Unfortunately, none of India’s largest law firms agreed to participate in the survey. Had they done so, it is likely that the average reported rates would have been higher.
As in previous years, corporate counsel in India and overseas have welcomed the survey and many have praised the law firms that agreed to take part.
“It’s great that you present this survey, which can be used by in-house counsel to go to the most competitive firms,” says Himavat Chaudhuri, executive director and senior counsel at Turner General Entertainment Networks.
“We support this initiative because it may help us in fixing legal consultant fees,” says Ancy de Jacob, manager of legal and compliance at Petronet LNG.
“Increased levels of transparency will help in evaluating the appropriate firm for the matter,” says Sree Patel, head of legal and corporate affairs at GlaxoSmithKline in Mumbai.
Even some of the law firms that declined to reveal their fees were nevertheless supportive of the initiative. “We are sure that such a survey will be of great value to your readers,” said Balinder Singh, the chief information officer of Dua Associates in New Delhi.
The billing information provided by the 40 participating firms indicates that while associates’ fees have risen sharply over the last 12 months, the fees charged by partners have experienced a more modest increase.
The hourly billing rates of junior and senior associates have risen by 7.2% and 11.1% respectively. A junior associate can now be expected to charge an average of US$104 per hour and a senior associate typically charges US$159.
By contrast, lawyers at partner level witnessed minimal growth in their hourly fees. Junior partners now bill clients an average of US$205 per hour – a 5.1% increase on last year’s figure – while managing partners charge an average of US$297 – an increase of 3.1%. Senior partners’ rates remained unchanged from last year at US$256 an hour.
A full breakdown of the rates charged by each participating firm can be found on pages 50 and 51, while the average billing rates of lawyers of different levels of seniority are shown on the graph opposite.
Fixing the fees
While this information will certainly provide a valuable benchmark for law firm clients, many would rather move away from hourly rate billing altogether.
“We would almost always negotiate a fixed fee for a transaction,” says Chaudhuri. “Hourly billing to my mind is only indicative and fixed fees help a client control cost.”
In response to such demands, law firms are bending over backwards to devise flexible alternatives. As a result, over 70% of matters handled by firms including Aswal Associates, RK Dewan & Co, Chadha & Chadha, Anand and Anand and IP Gurus are billed using capped or alternative fee structures (see Hourly fees v alternative billing, page 49).
Alternative billing structures aren’t only advantageous to clients. They give “both parties the comfort of knowing that the budgets are going to be met” explains Gunjan Paharia, the managing partner of Zeus IP. “It helps us work more efficiently, without having to keep going back to the client for approvals on escalating costs.”
However, Ranjeev Dubey, the managing partner of N South in Gurgaon, cautions that with a capped fee system clients could actually end up paying more than they expected. “Naturally, the scope of work in the letter of engagement is carefully drafted and the client cannot have the flexibility of expanding that without opening the door on another round of price negotiation,” he says.
Firms like N South, Singh & Associates, LexCounsel, DH Law Associates and SRGR Law Offices rely heavily on hourly billing, with over 70% of their work charged accordingly.
Many firms are currently offering a combination of fee structures, with the hourly rate model serving only as a starting point. “Our billing plans are flexible and modified to suit clients’ specific requirements,” says Rajan Gupta, a partner at SRGR Law Offices. His firm offers a hybrid system of hourly rates and lump sum billing. A fixed retainer fee is charged with a ceiling on the number of hours. Thereafter, billable hours are charged at a pre-agreed hourly rate, or lump sum fees are used in situations in which it is possible to estimate the time and effort required.
Rajesh Begur, the managing partner of ARA Law, says his firm bills clients on an hourly basis, but also offers other alternatives. “We do accommodate clients with a blended rate or with a lump sum fee for the matter depending upon the scope and senior team’s involvement required.”
Several law firms noted that flat rates may be offered for transactions involving real estate and large commercial project work. “Alternative billing practices have been on the rise, especially in matters of real estate, due diligence exercises and investment transactions,” observes Kavitha Vijay, an attorney at Universal Legal in Chennai.
“In the project finance field, legal fees are generally quoted on a lump sum basis and are fixed at the time of acceptance of the assignment,” explains Tushar Desai, a partner at India Law Services. “There may be some exceptions, but in this field it is a widely accepted practice to have lump sum fixed fees as opposed to hourly rate charges. On average our fees range between Rs1 million (US$22,500) to Rs4 million for an assignment.”
Different rates for different clients
Some law firms openly admit that their charges depend on the client. “Different fixed rate schedules exist for Indian and foreign clients and in some instances the differentiation is based on complexities,” says Pravin Anand, the managing partner of Anand and Anand.
“We do relax our rates for smaller, genuine clients where we are sure they are under some hardship and a resource crunch or are a newly established entity,” says Sudhir Kumar Aswal, managing partner at Aswal Associates.
Many other firms confirm that their long-term clients or those which guarantee a lot of work are given fee reductions. “Some old clients continue to have preferential billing rates but that is the unspoken loyalty bonus that any industry should and probably does offer,” says Dubey.
“Discounts and special rates may be offered for bulk repetitive assignments such as multiclass trademark filings and design registrations; special projects; and if we are the exclusive attorneys for the client, for all the IPR services required by them,” says Niti Dewan, a senior patent and trademark consultant at RK Dewan & Co.
Overpriced or undervalued?
However the fees are structured, the overall cost of legal services in India is certainly on the rise.
“Our billing rates have increased by nearly 40% over the last year,” says Manish Desai, the managing partner of Vidhii Partners, which was established in November 2009.
Raja Pannir Selvam, the managing attorney of Selvam & Selvam in Chennai, tells of one of his clients who “mentioned that an Indian lawyer charged US$620 per hour to file a trademark application, which even US attorneys wouldn’t”.
Ohers suggest that certain firms may be taking advantage of their reputations to overcharge clients. “In our clients’ experiences, there are examples where firms charge outrageous fees without delivering services of even an average level, merely because they are large in size or because they have been in the market for a long period of time,” says Gupta.
Seema Jhinghan, a partner at LexCounsel, concurs, arguing that although Indian law firms generally offer value for money, “quite a few firms – generally the bigger ones – are overpriced and excessive in their billings. The rates of such firms are brand driven rather than [based on the] quality of services rendered.”
Amarjit Singh, the managing partner of Amarjit & Associates, disagrees. He argues that some Indian firms are cheaper than both their Western counterparts and also firms in neighbouring jurisdictions. “The fee structure offered by some of the Indian law firms for the protection of IP rights is comparatively less than the fees charged by the associates in neighbouring countries like Pakistan, Sri Lanka, Bangladesh, Bhutan and Myanmar,” he says.
Patel at GlaxoSmithKline, believes that Indian law firms offer value for money “particularly in matters relating to Indian law, policy and litigation as they understand the Indian context well”.
But measuring value can be challenging. Vivek Durai, a partner at Atman Law in Chennai, warns that clients may not receive value for money from their lawyers when undertaking M&A, banking and infrastructure transactions. This is largely because “these practice areas are cash cows for the major firms in much the same way as ‘India entry and inward investment’ was in the 1990s,” he says, adding that “since the value of transactions are huge in these sectors, clients themselves are not too concerned with price competitiveness”.
More bang for your buck
Many corporate counsel have commended India’s lawyers for their “business acumen”, “deep insight”, “outstanding legal and practical advice” and “dedication to their client’s goal”. As a result, they say, law firms are justified in charging their clients higher fees. “A firm like S&R Associates is entitled to charge a premium over other firms for capital market issues,” says Chaudhuri. “Industry expertise and leadership would be another criterion, so AZB & Partners would be entitled to charge media clients a premium just because of the wide variety of media transactions they have been involved in for the last decade or more.”
Having said that, Chaudhuri notes that the best billing arrangement he received over the past year was not from a law firm, but rather a legal process outsourcer (LPO). “Bodhi Global worked with our company to develop and identify processes for some of our content acquisitions and then charged us fixed fees for each transaction made by us. The quality of reports presented by them for the price paid was unmatched by any law firm we have worked with.”
Views on transparency
When India Business Law Journal first conducted its billing rates survey in 2007, a principal aim was to satisfy the demands of corporate counsel for increased transparancy in the murky world of law firm billing.
Since then, opinions on the issue of transparency have continued to vary. Gopal Trivedi, an advocate at Chadha & Chadha believes that “except in a few cases, there is sufficient transparency in the prices of legal service in India”.
But Karnika Seth, the managing partner of Seth Associates, thinks otherwise. “Billing rates are not generally transparent,” she says.
Durai at Atman Law also laments the lack of transparency in the price of legal services in India: “I have worked in three of the major firms in India, so I am generally aware of their billing models and approach … What they quote is significantly different from their stated rates and depends on the client and the kind of deal.”
Dubey at N South agrees with Durai’s view, but asks, “Is there transparency anywhere? A relationship that regulations say is fiduciary and confidential is bound to be opaque in most respects.”
Lawyers suggest a number of other reasons for poor disclosure. “Since competition is fierce and some firms are not confident of winning representations … they choose to drop billing rates substantially to obtain work, or prefer to keep billing rates a secret,” says Diljeet Titus, the managing partner at Titus & Co in New Delhi.
Competition is indeed fierce as new firms continue to challenge the dominace of established players. “As new entrants in the field of intellectual property are offering services at low rates to grab business, many established firms are reducing their fees to compete,” says Dewan.
One lawyer, who wished to remain anonymous, said some firms exploit their clients naivety to boost their billing. “At times, especially when files are transferred, some Indian lawyers do not educate their corporate clients,” he says. “They quietly do what the corporate client wants knowing very well that it is wrong or at least a mistake and when pointed out by the court, once again charges the client for setting the records straight.”
Communication and trust are clearly paramount if transparency is to become the norm within the Indian legal profession. While progress may be slow, the determination of Indian law firms to compete on an international level and their desire to achieve new professional standards suggest that, in time, better transparency will be attained.