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CounselLink Enterprise Legal Management Trends Report
Executive Highlights
Insights are based on data derived from more than $40 billion in legal spending, almost 8 million invoices, and more than 1 million matters. The key metrics are based on 2020 charges billed by outside counsel.
HOURLY RATES CONTINUE TO INCREASE
Despite pandemic-related and other pressures for legal departments to reduce outside counsel spending, hourly rates paid to U.S. law firms increased in 2020. On average, partner hourly rates in 2020 were 3.5% higher than 2019 rates. This is slightly higher than the 3.3% increase in partner hourly rates from 2018 to 2019.
“LARGEST 50” FIRMS CONTINUE TO TAKE A COMMANDING SHARE OF HIGH-RATE WORK
The “Largest 50” firms (those with more than 750 lawyers) continue to account for the largest share of U.S. legal spending. In 2020, 49% of outside counsel spending was paid to “Largest 50” firms, which is consistent with results from recent years. Trends show that the largest firms continue to gain share of wallet for the highest rate work. The three matter categories commanding the highest partner rates are Mergers and Acquisitions; Regulatory and Compliance; and Finance, Loans, and Investments.
Combining these three matter categories, “Largest 50” firms had a 60% share of legal billings in 2020. Several other matter subcategories with high partner rates follow the same pattern: “Largest 50” firms had a 78% share of IP Litigation and a 66% share of Corporate Tax work.
HIGH-VALUE PRACTICE AREAS SAW THE HIGHEST RATE INCREASES
Partners working in high-rate practice areas had the highest average rate increases in 2020. Regulatory and Compliance rates showed the highest increase at 4.1% on average. The next highest average partner rate increases occurred in Corporate (4%); Finance, Loans, and Investments (3.9%); and Mergers and Acquisitions (3.9%).
USE OF ALTERNATIVE FEE ARRANGEMENTS CONTINUES TO INCREASE
AFAs continue to gain favor among corporate counsel. In 2020, 16.8% of matters had some portion of their billing under an arrangement other than hourly billing. The percentage of alternative fee arrangements (AFAs) has been gradually rising over the years. It is noteworthy that in 2020, AFAs were utilized for more than 10% of matters in each major practice area except Commercial, which billed 9.9% of matters under an AFA in 2020.
Introduction
The first edition of the annual CounselLink Enterprise Legal Management Trends Report was published in October 2013. That report established a set of six 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.
NEW FOR 2021
The volume of data available for analysis grows with each passing year, so the 2021 edition of the Trends Report provides the most up-to-date and detailed picture of how legal market dynamics are evolving. We’ve expanded the 2021 edition in two ways based on feedback from our readers:
- We’ve added a seventh metric highlighting hourly rates billed by law firm partners located in countries outside of the United States.
- We’ve divided many matter categories into more granular subcategories to provide more meaningful comparisons.
As always, information about the methodologies used, definitions, and expert contributors conducting the analysis are presented at the end of the report.
Update on seven key metrics
Each annual update of the CounselLink Enterprise Legal Management Trends Report covers a standard set of key metrics related to hourly legal rates and the corporate procurement of legal services.
Blended Hourly Rate for Matters by Practice Area
BLENDED HOURLY RATES AND RATE VOLATILITY DIFFER BY TYPE OF WORK
All analysis is based on data through Dec 31, 2020 Practice areas ordered by median blended matter rates
Blended matter hourly rate metrics
Volatility is a calculated indicator of blended rate variability. Higher numbers suggest better possibilities for negotiating rates and/or changing the assigned timekeeper mix.
See page 9 for guidance on interpreting all blended hourly rates charts.
Blended Hourly Rate for Matters – by Subcategory
BLENDED HOURLY RATES AND RATE VOLATILITY DIFFER BY SUBCATEGORY OF WORK
All analysis is based on data through Dec 31, 2020 Practice areas ordered by median blended matter rates
Interpreting the Charts:
The charts on the previous pages capture matter level benchmarks. It’s important to distinguish that Metric 1 is not benchmarking individual timekeeper rates. Metric 1 indicates blended rates from multiple timekeepers working on a given matter. As a guide to interpreting the output, compare the Real Estate category with the Commercial and Contracts category. These two categories have the same median blended matter rate of $360. However, note that Commercial and Contracts matters have a median partner rate of $607, which is considerably higher than that of Real Estate ($482). This disparity indicates that relative to Commercial and Contracts work, Real Estate matters are staffed more often with non-partners, whose hourly rates bring down the overall blended median matter rates.
The Volatility Index provided in this section is a calculated marker that shows the variability in blended matter rates. Using a 10-point scale, the Index highlights the broad spread 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, which often involve the most expensive firms and require significant partner engagement.
Comparing the Corporate category to Insurance as an example, the spread between the 25th and 75th percentiles of blended hourly rates for Corporate work is broader than the spread for Insurance.
On a 10-point scale, Corporate has a Volatility Index of 10 while Insurance has an Index of four, which indicates that the mix of timekeepers and rates paid on Corporate matters vary significantly compared to the timekeeper mix and rates paid for Insurance matters. A high Volatility Index could also indicate that a category represents a wide range of matter types.
The 2020 data revealed that three matter categories have relatively low Volatility Indices (5 or lower), which means rates are consistent and less subject to negotiations between corporations and their firms:
- Insurance
- Real Estate
- Environmental
Legal departments can compare their own data against these rates and ranges for help managing costs. If departments are paying at or near the top of the range for more volatile matter types, there may be opportunities to negotiate lower rates or 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.
Key Metric 1B: Blended Hourly Rates and Rate Volatility Differ by Legal Work Subcategories
Key Metric 1 measures median billing rates for high-level categories of legal work. To continue providing meaningful data points for decision makers in the legal industry, the 2021 Trends Report has expanded to include benchmarks representing more subcategories.
Note that several of the subcategories have volatility scores that are lower than the scores of their parent categories. For example, refer to the Corporate practice area in Key Metric 1B.
Key Metric 1B highlights three subcategories of Corporate matters: Antitrust, Bankruptcy, and Tax. These areas have volatility scores of 6, 5, and 9, respectively. These scores indicate that there is less variability between the 25th and 75th percentile blended rates paid for these specific types of legal work relative to the broader category of Corporate, which has a volatility score of 10. The volatility scores indicate that these subcategories have greater consistency in staffing and/or negotiated rates, particularly for Antitrust and Bankruptcy.
Law Firm Consolidation:
Number of Legal Vendors Used by Corporations
HALF OF COMPANIES IN THE COUNSELLINK DATA POOL HAVE 10 FIRMS OR FEWER THAT ACCOUNT FOR AT LEAST 80% OF THEIR OUTSIDE COUNSEL FEES
All analysis is based on data through Dec 31, 2020
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 separates participating companies into nine segments representing different degrees of consolidation. For example, the bar on the far right shows that 30% of participating companies have 90 – 100% of their legal billings with 10 or fewer vendors; these are the most consolidated legal departments. The far left bar shows that just 2% of companies have 20 – 30% of their legal billings with 10 or fewer firms. Data from 2020 reveals a subtle shift of law departments dropping from the 80 – 90% range to the 70 – 80% segment. Future reports will determine whether this shift represents a new trend.
Industry type plays a significant role in consolidation.
Alternative Fee Arrangement (AFA) Usage by Matter
SOME FORM OF AFAs WERE USED IN 16.8% OF MATTERS
Based on 12 months of data ending December 31, 2020
The use of AFAs to govern legal service payments varies considerably by legal matter type. High volume, predictable work included in the Insurance category and the Employment and Labor category traditionally have the highest volume of matters billed under AFAs. These two categories have roughly a quarter of their matters billed under some form of alternative arrangement.
It is noteworthy that all matter categories except one utilized AFAs for at least 10% of matters. The sole outlier, Commercial, is at 9.9% and on the verge of meeting that criteria. These numbers indicate that the industry is moving toward not relying solely on hourly billing as the mechanism for payment of legal services.
Partner Hourly Rate Differences by Law Firm Size
MEDIAN RATES ACROSS PRACTICE AREAS, EXCLUDING INSURANCE
Based on 12 months of data ending December 31, 2020
The size of a law firm is highly correlated to the rates billed by its lawyers. This correlation is especially notable for the largest category of firms: those with 750 or more lawyers. The median hourly billing rate for partners in firms with more than 750 lawyers ($844) is 47% higher than the median hourly billing rate for partners in firms with 501 to 750 lawyers ($575).
The largest firms (those with more than 750 lawyers) represent the greatest year-over-year median partner billing rate increase from 2019 to 2020 at 4.9%.
Partner Hourly Rate Growth by City
FOUR MAJOR METROPOLITAN AREAS SHOW MEDIAN PARTNER RATE GROWTH OF MORE THAN 4%
Based on 12 months of data ending December 31, 2020
Interpreting the Chart:
Across the United States, partner hourly rates grew 3.5% on average in 2020.
The biggest growth spurts in attorney rates for the last year occurred in Boston, Seattle, Miami, and San Francisco. Each of these four cities saw attorney rates grow more than 4% relative to 2019.
On the opposite side of the spectrum, two cities saw hourly growth rate below 3%: Houston and Pittsburgh.
Partner Hourly Rate Growth by State
GROWTH IN MEDIAN PARTNER RATES VARIES BY STATE, AVERAGING 3.5% YEAR-OVER-YEAR INCREASE
Based on 12 months data ending December 31, 2020
3.5% AVERAGE GROWTH IN PARTNER RATES ACROSS STATES
This increase is slightly higher than the prior year average increase.
Median Partner Hourly Rate by Practice Area
MEDIAN PARTNER RATES IN FIVE PRACTICE AREAS ABOVE $600 AN HOUR
Based on 12 months of data ending December 31, 2020
Aggregate statistics based on legal work performed in 2020 identify Mergers and Acquisitions as the practice area with the highest median partner hourly rate at $850. The two next highest practice areas are quite close in median rates: Regulatory and Compliance shows a median partner hourly rate of $700 and Finance, Loans, and Investments has a median partner hourly rate of $695. Practice areas with the highest rates occupy those spaces in part because companies often use larger firms for such matters. In 2020, the “Largest 50” firms handled 67% of Merger and Acquisitions work and 66% of Finance, Loans, and Investments work. As noted in Key Metric 4, partners in these firms bill at significantly higher rates than partners at smaller firms.
Conversely, Insurance work is at the lower end of the hourly rate spectrum. Insurance carriers demand and negotiate aggressively for low rates on their high-volume defense matters. Law firms with fewer than 50 lawyers handle the largest share of Insurance work (37% in 2020).
Median Partner Rates by Subcategory of Work
WITHIN PRACTICE AREAS, SUBCATEGORY RATES VARY CONSIDERABLY
Based on 12 months of data ending December 31, 2020
New in the 2021 Trends Report, benchmarks are available for more granular categories of legal work. Litigation work, for example, encompasses a wide variety of practices that command very different rates. At the high end, Intellectual Property Litigation billed a median partner hourly rate of $850 in 2020, whereas Personal Injury Litigation billed a median partner hourly rate of $225.
Partner Hourly Rate Growth by Practice Area
FOUR PRACTICE AREAS LEAD PARTNER RATE GROWTH IN 2020
Based on 12 months of data ending December 31, 2020
Turning to partner rate growth by practice area, the four types of work that command the highest rates (see Metric 6A) are also the four practices with the largest average rate increases in 2020 relative to 2019: Regulatory and Compliance; Corporate; Finance, Loans, and Investments; and Mergers and Acquisitions.
Partner rates for Environmental work increased notably less than rates in other practice areas
International Partner Rates for Litigation and Intellectual Property (non-Litigation)
CORPORATIONS HIRED INTERNATIONAL OUTSIDE COUNSEL FOR BOTH LITIGATION AND IP WORK
Based on 12 months data ending December 31, 2020
Corporations headquartered outside of the United States as well as U.S. corporations with international interests look to firms in other countries to handle their legal needs. Key Metric 7 provides benchmarks of median partner hourly rates for 10 of the countries in which corporations most often engage outside counsel for both Litigation and Intellectual Property work.
In 2020, median Litigation hourly rates were notably higher in the Republic of Korea ($720) and the United Kingdom ($649).
For IP-related work (non-litigation), two countries billed more than $600/hour: the Republic of Korea ($616) and the Netherlands ($612).
India and Brazil had partners billing at considerably lower rates in both matter categories.
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.
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
Expert Contributor
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 brings over 20 years of experience consulting in the legal industry to advise 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 honing 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.
CounselLink
LexisNexis® CounselLink® is the leading cloud-based legal management solution designed to help corporate legal departments gain 100% visibility into all matters and invoices so they can control costs, maximize productivity, and make better decisions. For nearly 30 years, LexisNexis has been providing innovative solutions to corporate law departments based on insight from thought leaders, industry expertise, and customer feedback.
Here’s how CounselLink supports your legal department:
- Financial Management improves the predictability of legal spend with complete visibility and oversight of every penny spent by the department.
- Work Management helps you collect, organize, track, audit, and report on all the work done within the legal department to increase productivity and drive better outcomes for your business.
- Vendor Management strengthens your relationships with law firms while measuring their performance, so you can select the best mix for your needs.
- Analytics provides you with full visibility over workloads and legal data analytics to make informed, data-driven decisions.
If you have questions or comments about the CounselLink Enterprise Legal Management Trends Report or want to learn more about CounselLink software and services, visit CounselLink.com, or contact us via email: LNCounselLink@LexisNexis.com.