Businesses call time on 'unsustainable' legal fees, says new report

The study, by law firm Eversheds, showed that the legal sector is set to face significant change over the next 10 years, and businesses will feel the benefits, including controlled fees and more commercially-focused law firms.

With businesses facing a growing amount of legislation, from employment claims to increased director liability, the need for specialist legal advice is more important than ever. However, the study of legal directors at 50 of the world's most prominent companies and 50 senior partners of the top 25 law firms showed that businesses, including retailers, are concerned that law firms are capitalising on a need for their services and increasing their fees without adding value.

The study showed that over half of businesses (55 percent) believe that the current growth in law firm fees is unsustainable and that law firms need to demonstrate better value for money to remain relevant. Added to this, many businesses who felt the growth in fees was sustainable only believed so because they felt they lacked the power to 'bargain down' law firms. Over half (53 percent) of companies thought lawyers needed to be more commercial in their approach and needed to better align themselves to their clients' business. The study also revealed a worrying lack of awareness of the issues among law firms. While rising fees and the cost of legal advice is the key concern for 57 percent of businesses, only 21 percent of law firm partners described the provision of added value as amongst their major challenges.

Commenting on the report's findings, David Gray, chief executive of Eversheds said “What this study revealed is that law firms can no longer charge their clients what businesses perceive to be spiralling fees for no added value. Going forward, businesses are much less likely to approve quotations which neglect to offer detailed scientific breakdowns of the work at hand or are perceived not to offer added value for money.

“It is clear that law firms will need to review how they charge or their clients will look elsewhere. Transparency goes hand-in-hand with trust and while the research shows that the client-lawyer relationship is improving, clients are also increasingly calling on their legal providers to become more commercial and align themselves to their clients' business and provide a more transparent value-for-money approach to billing. Anecdotal evidence from the research shows that businesses, perhaps understandably, don't want law firms to charge for the 'learning curve' - that is, the time it takes to gain a greater understanding of the client's business and sector.”

However, the study highlighted contradictions regarding the use of the hourly rate. While 82 percent of partners and 86 percent of businesses believe the hourly rate will be alive and well in 10 years time, a third of clients (32 percent) were strongly against its use and many partners and companies acknowledged that it was not the most advantageous billing process for businesses.

Gray adds “There is a clear contradiction between providing value for money and how law firms currently bill. While many partners interviewed recognise the hourly rate is not the best way to bill clients, many cannot see an alternative. That said, the research showed that a move to fixed budgets and fees which are agreed in advance is and will be the most popular alternative to the hourly rate. It is important that law firms work with businesses to establish a billing method that is beneficial to all.”

The study, which was conducted by leading legal researcher RSG Consulting on behalf of Eversheds, provides a unique insight into the likely trends and future landscape of the legal profession. The legal sector is worth an estimated £15billion in the UK alone and £217bn globally, and is approximately twice the size of the accountancy profession.