Legal fees have plateaued, but clients have misgivings over billing arrangements, transparency and the value for money they receive
Vandana Chatlani reports
India’s top 100 companies are expected to increase their legal spending to US$555 million this year, an 11% rise from last year, according to London-based RSG Consulting. In three years’ time, RSG estimates that this number will surpass US$1 billion.
Pharmaceuticals company Wockhardt, for example, spends about US$5 million a year globally on legal fees, and that excludes its patent-related expenditure.
Bharti Enterprises also runs up large legal bills. “Last year was rather high; around US$8.5 million on account of a large deal,” says Vijaya Sampath, the company’s group CEO. “However, the real costs are in litigation where there is no control of any nature and cases can drag on for years with adjournments.”
In spite of the spiralling legal bills being run up by Indian companies, the hourly rates charged by the country’s law firms have changed little in the last year. Sawant Singh, a partner at Phoenix Legal, says that legal fees have been at a standstill. “Fee sensitivity is high,” he says.
The fragmented nature of India’s legal market is one of the factors keeping fees in check. “There is constant undercutting in the market,” says Singh. “Rates are being driven down, even at big firms. [If this continues] they’ll start pushing each other out of the market.”
Flat fees, rising transparency
India Business Law Journal’s fifth annual survey of law firm billing rates, which was conducted in September, confirms Singh’s observations. Law firm billing rates appear to have plateaued. The average cost of hiring an Indian lawyer is US$201 per hour, unchanged from last year. Just 38% of Indian law firms increased their fees in the past 12 months. 12% lowered them and 50% of firms have kept them the same.
Forty four law firms participated in this year’s billing rates survey, 10% more than last year and a 76% increase on the number of participants in our first survey in 2007.
Participating firms disclosed their standard hourly fees for lawyers of five levels of seniority, ranging from junior associates up to the managing partner. They also shared information about their use of alternative billing practices.
The growth in the number of participants indicates that while billing rates may not have increased over the last year, transparency certainly has. Leading the charge were India’s IP boutiques, which accounted for 41% of survey responses.
Once again, India’s largest law firms were conspicuous by their absence. Firms such as Amarchand Mangaldas, AZB & Partners, J Sagar Associates, Khaitan & Co, Luthra & Luthra and Trilegal have yet to participate in the survey. Whether they will bow to client pressure and do so in future years remains to be seen. “Publishing hourly rates is certainly a good idea,” says GSRK Rao, a legal adviser at CRISIL, the largest credit rating agency in India.
In the absence of any billing data from India’s largest law firms, it’s important to note that the findings are not necessarily representative of the entire legal market. More than 200 law firms were invited to participate, but the results are based solely on the 44 firms that consented. A list of these firms and the full billing details of each one can be found on pages 42 and 43.
Independent advocates, who are the majority of legal practitioners in India, were not invited to participate. Neither were law firms that do not represent a significant number of commercial clients.
Senior lawyers’ fees fall
Senior partners and managing partners have experienced decreases in their billing rates over the past year. The average hourly rate billed by senior partners fell 4.3% to US$245, while managing partners’ fees are down 1.3% to US$293 per hour. Significantly, this is the first time since India Business Law Journal started its billing rates survey in 2007 that a drop has been recorded in the hourly fees of senior partners (the rates charged by managing partners also fell in 2009).
Falling rates at senior levels have been balanced by some increases in the prices charged by more junior lawyers. The average fees for junior partners rose by 2% to an average of US$209 per hour, while senior associates, whose average hourly rate jumped 11.1% last year, remained unchanged at US$159 per hour. The average hourly rate for junior associates climbed 4.8% to US$109. This follows a 7.2% jump in junior associates’ billing rates last year.
The average billing rates of lawyers of all levels of seniority are shown in the graph below.
In search of value
Of course billing rates alone do not determine a client’s choice of law firm. Low fees don’t always translate into good value for money and discounted rates are meaningless if delivery is delayed or the advice is imprecise or long-winded.
Despite spending around US$5 million per year on legal services, Debolina Partap, the vice-president of legal at Wockhardt, is far from satisfied with the value for money that law firms provide. “Very few law firms provide the right mix of cost-effectiveness, solutions and the killer instinct to achieve success,” she says.
On some occasions the value proposition of engaging a law firm fails completely. Partap recounts one incident where she had to deal with “a partner telling me one night before the deal was signed that he did not represent us”.
Other clients report similar experiences. Rajeev Jain, the general manager of corporate affairs at The Hindustan Times, recalls an incident when “a senior advocate was paid hefty fees in advance and did not turn up in court on time in a critical matter”.
Litigation is a thorny issue when it comes to receiving value for money. Paharpur Cooling Towers in Kolkata spends up to US$200,000 per year on legal fees, but the company’s CFO, Arun Singhania, says that when it comes to court-related expenditure, “most of the money and valuable management time is wasted”. Singhania cites four key reasons for this: “(a) the law firm is not prepared with the case on the date; (b) the counsel is unavailable on the date; (c) the court frequently does not function due to strikes, absenteeism or other causes; and (d) long court holidays both in summer and winter.”
Judging the quality and value of legal services is a complex task. “It is difficult to generalize that all firms do or do not offer value for money,” says Sampath at Bharti Enterprises. “Sometimes the quality is quite erratic and uneven within the same firm.
“Our worst experience with Indian firms [is receiving] 20-page-long opinions, out of which 10 pages are disclaimers, three pages are extracts of the relevant laws and only two paragraphs are devoted to analysis and opinion,” Sampath says, “and the opinion does not amount to much”.
Lawyers react to such horror stories by stressing the importance of choosing the right law firm. “Competence and a history of service delivery is what matters,” says Singh at Phoenix Legal.
Hiroo Advani, the managing partner of Advani & Co, suggests it is at “tier two firms that the best value for money can be found,” while Seema Jhingan, a partner at LexCounsel, believes that smaller firms are best placed to offer a winning mix of low fees and high partner involvement. “The legal fees charged by larger Indian firms are sometimes excessive,” she says. “The fees are commensurate with the brand of the firm rather than the seniority of the lawyer working on the matter, or the quality of services delivered.”
Other observers say that smaller firms are not always in a position to offer lower fees. “There may not be significant difference in legal fees between small firms and large firms, especially where a smaller firm is able to deliver high quality of work, often with better efficiency and turnaround time as compared to a larger firm,” says Sandeep Parekh, the founding partner of Finsec Law Advisors.
Balancing cost and quality
Legal practitioners and in-house counsel share their tips on getting value for money from law firms
Do not go simply by the name of the firm, but also by the quality of the partner who is made available for client servicing. There are a number of law firms which can give quality advice but there a very few law firms which will deliver on time. To get value for money, clients should survey the rates of competing law firms and keep a check on the number of lawyers deployed to handle their matter.
Bomi Daruwala, partner, Vaish Associates
Discuss matters thoroughly in-house and reach a common consensus across departments before engaging outside counsel. This ensures a more streamlined approach to the matter and can result in significant cost savings.
Essenese Obhan, managing partner, Obhan & Associates
Set up, implement and continue to monitor a strict and robust compliance system for good corporate governance. Ensure business associates receive regular education on legal and regulatory issues. In difficult times have a solution-oriented approach rather than a belligerent one.
Debolina Partap, vice president of legal, Wockhardt
If clients strategize with attorneys beforehand, then a lot of legal expenses can be saved. A clear understanding of timelines and strategies should be discussed at an early stage.
Chander Lall, managing partner, Lall & Sethi
Avoid outsourcing of non-core issues to external counsel.
Seema Jhingan, partner, LexCounsel
We usually advise our clients to understand their requirements upfront; clearly set out the scope of work for the firm; be thorough and prepared so discussions are succinct and not drawn out; provide feedback in a timely and appropriately detailed manner to avoid duplication of work; and work with the firm as a part of its own internal team as opposed treating it as an outsider.
PM Thimmaiah, owner, MD&T Partners
Focus on the accountability of the lawyer rather than fees.
Manish Desai, managing partner, Vidhii Partners
It is always favourable to stay with one lawyer or law firm for business needs. A lawyer may be willing to provide discounts on their billing rate if a client can guarantee consistent amounts of work.
Diljeet Titus, managing partner, Titus & Co
A bad settlement is better than a successful but protracted litigation.
Lalit Bhasin, managing partner, Bhasin & Co
Be discriminate in your choice of counsel. If you know an expert, even at slightly higher hourly rates, will do the job in a day that somebody will do in two and using his or her whole team, go with the expert.
Sven Deimann, senior legal counsel,
Get your documents drafted in-house and vetted by the law firms. This will reduce costs.
Arun Singhania, CFO, Paharpur Cooling Towers
Perceptions of transparency
Opinions on the transparency of Indian law firms’ billing practices vary markedly.
“We do not find transparency in the price of legal services in India,” says Shireen Sethna Baria, the managing partner of Vakils Associated in Secunderabad.
Singhania agrees: “There is complete lack of transparency and except for a few firms, you really do not know the number of man hours spent on a matter.”
Others are generally satisfied. “The level of transparency is very high,” says Partap. “I think [India Business Law Journal’s billing rates survey] is a very good idea and brings in more transparency as well as competitiveness.”
TC Arora, an adviser at Astonfield Renewables, says “law firms generally regard their billing rates, hourly or otherwise, as wholly confidential. The willingness to publish hourly billing rates by law firms is certainly a good beginning. This would help facilitate decision-making in the choice of a law firm.”
Alternative billing models
While hourly billing has long been the favoured method of charging for legal advice, it has some inherent drawbacks. Many clients worry that it incentivizes inefficiency by rewarding lawyers who work slowly. It also makes it very difficult for clients to budget upfront for the legal costs they will incur during a project.
“It would be good if law firms were finally to realize that we, as a corporation, also need to work with budgets and forecasts,” says Sven Deimann, the senior legal counsel at Bombardier Transportation in Montreal. “We cannot accept fee structures that provide for automatic and unilateral increases in hourly rates after so many months, or because this or that associate has acquired more seniority and advanced to senior associate status.”
Sampath is also critical of hourly billing and looks forward to the day when alternative models take root in India. “Hourly billing rates are dying a slow death overseas and the same will happen in India over time,” she says.
Some law firms are already beginning to embrace alternative billing (see Hourly rate v alternative billing, below). India Law Offices, for example, has introduced “milestone-based fixed fee rates” for some of its corporate work. “This helps our clients realize value and pushes both our team and the client to conclude the process in the most efficient manner,” says Gautam Khurana, the firm’s managing partner.
“For litigation we use a mix of fixed rates for drafting work and bill clients on the basis of appearances and further drafting. This keeps the process transparent for the client and does not put too much pressure for payment at the time of initiating the litigation process,” Khurana adds.
Chennai-based IP boutique Selvam & Selvam uses hourly billing for only 10% of its clients. “Primarily we follow flat fixed fees so as to keep our clients aware of the total costs, or we cap the fee in cases involving research or litigation,” says Raja Selvam Pannir, an attorney at the firm.
Many alternative billing models offer the comfort of predictability. “We find that clients, especially Indian clients, are not comfortable with an hourly billing rate and prefer to have an estimate of costs upfront,” says Essenese Obhan, the managing partner at IP firm Obhan & Associates. “The use of alternate billing practices is now standard for a majority of our clients.”
Sometimes, a mixture of fixed and hourly billing is a workable combination. “We use fixed rates for routine work,” says Gopal Trivedi, an attorney at IP firm Chadha & Chadha in New Delhi. “We charge a fixed amount for initial filing of a litigation case and … subsequent drafting and hearings are charged on hourly or per hearing basis.”
However, alternative billing is sometimes tricky during litigation “where the nature, scope and volume of work may change over time, but the agreed fee remains fixed,” says PM Thimmaiah, the owner of MD&T Partners in Bangalore.
Another common billing practice is the retainer model. This is especially practical for clients who are comfortable using one law firm for a variety of legal matters, both routine and unique. Firms vary in how they structure their retainer models. To benefit from fixed fees at Titus & Co, clients must commit to engaging the firm for a full year. The specified work is included in the fixed fee and clients are automatically billed each month. If a client terminates the agreement before the end of the 12-month period, it will be expected to pay a three-month termination fee.
At Vaish Associates, the retainer arrangement consists of a monthly fixed fee based on a certain number of person-hours or a number of assignments to be undertaken. Fixed fee arrangements are offered within a specific timeline. If the work extends beyond that timeline, the firm will charge hourly rates for the extended period.
The law firms that participated in India Business Law Journal’s billing rates survey were required to state standard prices for each category of lawyer and place this information in the public domain – where it is easily accessible to their clients. This posed a dilemma for many participants, not least because it is common practice for firms to charge different rates to different clients.
Like most businesses, law firms will reward loyalty and high volumes of repeat work with lower fees. But there is also the tendency to charge each client the highest rate that the lawyers think it will be able and willing to pay.
“We have created process flows that encourage clients to instruct on all procedural and administrative issues at one go and we offer significant cost savings for such processes,” says Obhan. “We also discount rates for smaller companies, startups and individual clients,” he adds.
LexCounsel is open to offering lower rates for “clients that are startups, not-for-profit entities, those engaged in entrepreneurial initiatives, small and medium-sized enterprises needing assistance for growth and clients committing bulk work,” says Jhingan.
At Vaish Assciates, all fees are derived from a standard “rack rate”, but adjusted to reflect the identity of the client and the nature of the work. Bomi Daruwala, a partner at the firm, explains: “In determining the rates, we keep the following factors in mind: (a) quantum of work; (b) complexity of the matter; (c) the advantage of the experience that such work will bring; and (d) the work pressure in the office.”
Vidhii Partners, meanwhile, customizes its billing model “to suit the paying capacity and the comfort of our clients,” says Manish Desai, the firm’s managing partner.
One client that has no trouble driving down legal costs is the Indian government. “Mostly we use the same rates for all of the clients except when we are advising various government entities,” says Ravi Bishnoi, a partner at SRGR Law Offices.
Knowing that the government makes price a key criterion in the selection of legal advisers, most law firms will quote substantially lower fees than those offered to private clients. They are particularly happy to slash their rates if it enables them to secure a role on a prestigious or high-profile government project. Disinvestments of large state-owned companies, for example, require extensive legal and financial expertise.
Loosening the purse strings
Private clients have no such luxury and must be prepared to part with larger sums of money if they want to secure the services of a leading adviser. IP boutique Anand and Anand, for example, charges around US$500 an hour for a senior partner if the work involves advanced and emerging complexities, such as patent litigation for pharmaceutical agrochemical companies. For an hour of the managing partner’s time, this amount rises to US$700. Clients could also face bigger invoices “for complex due diligence, as these … involve very intricate issues,” says Safir Anand, a senior partner at the firm.
Deimann says he is willing to spend more for specialist expertise as long as it comes hand in hand with visibility on how a matter is being handled. “Our experience – not just in India – has been that sometimes it pays off to work with acknowledged specialists if they are efficient.”
Rao at CRISIL is of a similar mindset. “If I am convinced of the sharpness and ability of the solicitor to handle a transaction, the fees will be a secondary consideration,” he says.
Who are you paying for?
Clients may be happy to pay higher fees for well-respected senior lawyers, but do they really know who is doing the work? For while it is common for them to be wooed by the stature, charisma and reputation of a high-profile partner during an initial meeting, there is no guarantee that the same partner will play any role in their assignment.
Deimann emphasizes the importance of visibility in terms of knowing how partners distribute work within their firms and which aspect of the file is dealt with by whom. “In that context, it is important for us always to see a justification in terms of value-added” he says. “It is probably easier to say in this context what is definitely not ‘value for money’ for us: large teams working collectively on a file and several associates writing up hours that we as a client can no longer verify because it is not clear who worked on what and why.”
One worrying trend is a growing tendency among some firms to outsource work to third parties without the client’s knowledge. This is particularly prevalent in the intellectual property field.
Amarjit Singh, the managing partner of Amarjit & Associates, explains that some IP firms market themselves heavily in a bid to win work that they will never undertake. Instead they act as agents, winning mandates from clients and farming them out to other service providers. “In most cases, foreign clients are not even aware of such arrangements as the entire correspondence and interaction with the clients is handled by the agency firms,” he says. “Clients are neither informed about the arrangements nor do they get to know about such arrangements till something serious happens to their rights.”