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CounselLink Enterprise Legal Management Trends Report
Executive Highlights
Insights are based on data derived from over $33 billion in legal spending, almost seven million invoices, and approximately 1.7 million matters processed through the CounselLink platform. The key metrics are based on 2018 and 2019 charges billed by outside counsel.
USE OF ALTERNATIVE FEE ARRANGEMENTS (AFAS) HAS INCREASED
TRelative to prior reports, AFAs are rising. The percentage of matters that include a non-hourly billing component has increased from 9.2% in 2017 to 12.2%. In addition, the percentage of dollars billed under an AFA increased from 7.4% to 8.3%.
HOURLY RATES AT LARGEST FIRMS HAVE INCREASED THE MOST
The gap between the average partner rates at the “Largest 50” firms (those with 750+ lawyers) and those at the “Second Largest” firms (501-750 lawyers) has continued to widen since our last report. Firms with more than 750 lawyers have billable rates that are 53% higher than the next tier of firms (501-750 lawyers). This compares to a 45% gap reported in 2017, and a 40% gap in 2016.
HIGH RATE WORK IS DOMINATED BY THE “LARGEST 50” FIRMS
The largest firms were responsible for 74% of the billings generated by Mergers and Acquisitions transactions in the period, 58% of Finance, Loans, and Investment work, 55% of Corporate, General, Tax work, and 52% of Regulatory and Compliance work. Combining these types of matters, the largest firms had a 57% share of the work in the current period compared to a 50% share in 2016.
THE LAW FIRM CONSOLIDATION TREND HAS STABILIZED
61% of companies in the data pool have 10 firms or fewer accounting for at least 80% of outside counsel fees. In prior reports 60% and 62% of companies were highly consolidated.
Introduction
The first edition of the CounselLink Enterprise Legal Management Trends Report was published in October 2013. That report established a set of key metrics based on data available via the CounselLink Enterprise Legal Management platform and provided insights that corporate law departments and law firms could use to guide their decisions and subsequent actions.
With the volume of data available for analysis growing with each passing year, the 2019 edition of the Trends Report represents the most up-to-date and even more detailed picture of how legal market dynamics are evolving over time.
As always, information about the methodologies used, definitions, and expert contributors conducting the analysis are presented at the end of the report.
Blended Hourly Rate for Matters – by Practice Area
BLENDED HOURLY RATES AND RATE VOLATILITY DIFFER BY TYPE OF WORK
Based on 12 months data ending April 30, 2019 Practice areas ordered by median blended matter rates
Interpreting the Chart:
The chart on page 5 captures median rates for three different groups of timekeepers (partners, associates, and paralegals) and the range of the blended average hourly rate across multiple matter types. As a guide to interpreting the output, consider IP-Trademark compared to Corporate, General, Tax. These two categories have somewhat similar median hourly partner rates – $552 and $500, respectively. Although the IP-Trademark partner rate is 10% higher than the Corporate, General, Tax partner rate, the blended median rate for IP-Trademark is considerably lower ($302) versus the same rate for Corporate, General, Tax ($410).
An additional metric provided in this section is the Volatility Index – a calculated marker indicating the variability encountered in blended matter rates. Using a 10-point scale, the Index reflects how broad the spread is between the 25th and 75th percentiles of hourly rates. High volatility scores indicate greater variance in prices paid based on the mix of timekeepers and individual hourly rates.
Although individual lawyer rates are the focus of considerable industry attention, it is equally, or arguably more important, to look at the bigger picture – the blended average rate of the different timekeepers that work on a matter. The chart shows that the median blended hourly rate is highest for Mergers and Acquisitions, where the most expensive firms are more often involved and with a great amount of partner engagement.
Comparing Regulatory and Compliance to Insurance as an example, the spread between the 25th and 75th percentiles of blended hourly rates for Regulatory and Compliance work is broader than that for Insurance. On a 10-point scale, Regulatory and Compliance has a Volatility Index of 10, while Insurance has an index of two, indicating that the mix of timekeepers and rates paid on Regulatory and Compliance matters varies more significantly than the mix for Insurance. A high Volatility Index could also be an indicator of a wide variety of matter types being represented in this category.
Eight matter types have a relatively low Volatility Index (4 or lower), which means rates are consistent and less subject to negotiations between corporations and their firms.
- Employment and Labor
- IP-Patent
- Mergers and Acquisitions
- Real Estate
- Environmental
- IP-Trademark
- Litigation
- Insurance
Rates across most practice areas are rising relative to prior reports, however, most notably for:
- Mergers and Acquisitions
- IP-Trademark
- Finance, Loans and Investments
The overall trend of rates is down slightly for IP-Patent work.
Legal departments can compare their own data against these rates and ranges for help in managing costs. If they are currently paying at the top end of the range for more volatile matter types, there may be an opportunity to negotiate lower rates or to request a different mix of timekeepers to reduce costs. Note, however, that when looking at trends, it is important to evaluate the entire range of rates rather than focusing solely on the median rate.
Law Firm Consolidation – Number of Legal Vendors Used by Corporations
61% OF COMPANIES IN THE DATA POOL HAVE 10 FIRMS OR FEWER ACCOUNTING FOR AT LEAST 80% OF OUTSIDE COUNSEL FEES
Based on 12 months data ending April 30, 2019Based on 12 months data ending April 30, 2019
Interpreting the Chart:
This chart shows the degree of law firm consolidation among companies whose outside counsel legal billings are processed through CounselLink. The horizontal axis aligns participating companies into nine segments addressing different degrees of consolidation. For example, the bar on the far right indicates that 35% of participating companies have 90-100% of their legal billings with 10 or fewer vendors, representing the most consolidated legal departments. On the other hand, the far left bar shows the least consolidation, with 1% of companies having 20-30% of their legal billings with 10 or fewer firms.
Industry type plays a significant role in consolidation. The segments noted below, reflecting high and low degrees of consolidation, were also identified as such in earlier Trends Reports:
- Retail Trade companies at 67% and Manufacturing — Other companies, at 72%, are highly consolidated.
- The Insurance industry has the lowest level of consolidation, at 39%
Overall, the percentages of corporations with high levels of law firm consolidation remained consistent since the last Trends Report.
Alternative Fee Arrangement (AFA) Usage
ALTERNATIVE FEE ARRANGEMENTS USED IN 12.2% OF MATTERS AND 8.3% OF BILLINGS IN THE PAST YEAR
Based on 12 months data ending April 30, 2019
The use of AFAs to govern legal service payments varies considerably by legal matter type. Commodity-type work included in the categories Insurance, IP-Patent, IP-Trademark, Employment and Labor, and Finance, Loans, and Investments usually have the highest volume of matters billed under AFAs.
The percentage of matters billed under an AFA for the category Finance, Loans, and Investments has increased notably from the last Trends Report, with 28% now billed under an AFA. One other category, Employment and Labor, also has more than 20% of matters billed under an AFA.
Alternative Fee Arrangement (AFA) Usage
ALTERNATIVE FEE ARRANGEMENTS USED IN 12.2% OF MATTERS AND 8.3% OF BILLINGS IN THE PAST YEAR
Based on 12 months data ending April 30, 2019
Overall use of AFAs has increased relative to prior reports, with the percentage of matters billed under an AFA increasing from 9.2% in 2017 to 12.2%, and the percentage of billings executed under an AFA increased from 7.4% to 8.3%.
As we have observed in previous Trends Reports, we are continuing to see high-cost matters, or portions of them, being billed under some form of an AFA.
Partner Hourly Rate – Overall
AVERAGE RATES ACROSS PRACTICE AREAS (EXCLUDING INSURANCE)
Based on 12 months data ending April 30, 2019
The gap between the average partner rates at the “Largest 50” firms (those with 750+ lawyers) and those at the “Second Largest” firms (501-750 lawyers) has continued to widen since our last report. Firms with more than 750 lawyers have billable rates that are 53% higher than the next tier of firms (501-750 lawyers). This compares to a 45% gap reported in 2017, and a 40% gap in 2016.
Partner Hourly Rate Growth – by City
5 MAJOR CITIES SHOW RATE GROWTH OF 4.0% OR MORE BOTH OVER THE LAST YEAR AND OVER THE LAST 3 YEARS
Based on 12 months data ending April 30, 2019
Interpreting the Chart:
In looking at unique partner hourly rates across 15 major metro areas, two indicators were plotted for each location to show both the year-over-year change and the compound annual growth rate (CAGR) over a three-year span.
Data for attorney rate growth by major U.S. city show that Seattle, Detroit, San Francisco, Washington. D.C., and New York City are at or above 4.0% in both compound annual growth rate (CAGR) and annual growth rate. On the opposite side of the spectrum, two cities saw hourly rate growth below 3.0% in both metrics: Miami and Phoenix.
Partner Hourly Rate Growth – by State
GROWTH IN AVERAGE PARTNER RATES VARIES BY STATE, AVERAGING 3.3% YEAR OVER YEAR GROWTH
Based on 12 months data ending April 30, 2019
The average growth in partner rates across states has continued to increase in with average growth year over year of 3.3%, compared to 3.2% average growth in 2017 versus 2016.
Partner Hourly Rate – by Practice Area
Based on 2019 data
Aggregate statistics based on CounselLink solution invoice data submitted in the last 12 months identify Mergers and Acquisition as the practice area with the highest partner rate – $706. Next is Corporate, General, Tax (including advice and counsel, antitrust work, and tax related matters), followed closely by Regulatory and Compliance and Finance, Loans, and Investments. In part, these practice areas at the top occupy those spaces because companies often use larger firms for these kinds of matters. In 2018 and 2019 to date, the “Largest 50” firms handled 74% of Merger and Acquisition work, 55% of Corporate, General, Tax legal work, 52% of Regulatory and Compliance work, and 58% of Finance, Loans and Investment work. At the lower end of the average hourly rate spectrum is insurance work. Insurance companies demand and negotiate aggressively for low rates on their high volume defense matters.
Partner Hourly Rate – by Practice Area
3 PRACTICE AREAS SHOWING 4% PARTNER RATE GROWTH BOTH OVER THE LAST YEAR AND OVER THE LAST 3 YEARS
Based on 12 months data ending April 30, 2019
Turning to partner rate growth by practice area, three of the 12 practice area categories have shown growth at or exceeding a 4.0% rate during the past year and over the previous three-year period: Mergers and Acquisitions, Corporate, General, Tax and IP-Patent. These same three practice groups stood out as having high rate growth in the prior Trends Report.
Partner rates for Insurance are growing notably more slowly than rates in other practice areas.
About the Enterprise Legal Management Trends Report
TERMINOLOGY:
Matter Categorization – CounselLink solution users define the types of work associated with various matters that were analyzed and categorized into legal practice areas. For this analysis, all types of litigation matters are classified as “litigation,” regardless of the nature of the dispute.
- Other, as an open category for all other matters and bills not already addressed
Company Size – Based on revenue cited in public sources, companies were grouped into these three size categories:
- $10 Billion Plus
- $1-10 Billion
- < $1 Billion
Company Industry – Companies were mapped into the NAICS hierarchy based on publicly available information:
- Finance
- Information
- Insurance
- Manufacturing
- Pharmaceutical
- Professional, Scientific and Technical Services
- Retail Trade
- Transportation and Warehousing
- Other
Since the inception of the CounselLink Enterprise Legal Management Trends Report, Kris Satkunas has been the principal author. She has made notable contributions to this latest Enterprise Legal Management Trends Report in the analysis of CounselLink data and in preparing the surrounding narrative.
Author
KRIS SATKUNAS – DIRECTOR OF STRATEGIC CONSULTING
As Director of Strategic Consulting at LexisNexis CounselLink, Kris leads the CounselLink team in advising corporate legal department managers on improving operations with data-driven decisions. Kris is an expert in managing the business of law and in data mining, with specific expertise in matter pricing and staffing, practice area metrics and scorecards.
Prior to joining CounselLink, Kris served as Director of the LexisNexis Redwood Think Tank, which she also established. For five years, Kris worked closely with thought leaders in large law firms conducting unbiased data-based research studies focused on finding solutions to legal industry management issues. Before that, she led the business of law consulting practice for large law firms. During that time she worked with key management at over a hundred law firms to improve the financial models and analyses developed for large law firms.
Kris has authored numerous articles and spoken at many legal industry conferences and events. She came to LexisNexis in 2000 after having honed her finance skills as a Senior Vice President in Strategic Finance at SunTrust Bank. She holds a B.B.A. in Finance from The College of William and Mary.
Kris may be reached at kristina.satkunas@lexisnexis.com.