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Large law firms continued to dominate high-rate work last year, but as clients reexamine their relationships during the pandemic in 2020, law firms have been heavily discounting, according to a new report based on law firm invoices.

For its 2020 Enterprise Legal Management Trends Report, CounselLink said it analyzed charges billed by outside counsel derived from nearly $35 billion in legal spending and almost 7 million invoices.

According to the report, the country's largest 50 law firms, which each have more than 750 attorneys, earned 62% of invoice amounts billed last year in three combined categories: mergers and acquisitions; corporate, general and tax; and finance, loans and investments.

"[The largest firms] really have a hold on those markets," said Kris Satkunas, director of strategic consulting at LexisNexis CounselLink and the report's author. "It's almost a chicken-and-the-egg thing: the larger the firm, the higher its rate. But a higher rate drives up the firms' average income, meaning the firm can grow even larger."

Specifically, among its sample of invoices, the largest 50 law firms commanded 77% of M&A work; 63% of finance, loans and investments work; and 58% of corporate, general and tax work in 2019.

According to the report, partners at the largest 50 firms, who billed an average of $575 per hour, billed at rates 51% higher than law firms with 501-750 lawyers, where partners billed an average of $380 per hour. Partners at law firms with 201-500 lawyers, who billed an average of $201-500 per hour, billed at rates 29% higher than law firms with 101-200 lawyers, where partners billed an average of $295 per hour.

"I don't think people realize how strong the correlation is between the size of the firm and the rates," Satkunas said. Firms slightly smaller than the "largest firms" category, ones with head counts of 501-750 lawyers, have an opportunity, she added, as clients look for high-quality legal work at a lower cost.

The report found that average partner rates among all law firms were $765 in M&A, $643 in corporate, general and tax; and $615 in finance, loans, and investments. Regulatory and compliance, trademark, patent and commercial were also relatively higher billing practice areas in 2019, with partners' average billing rates exceeding $500 per hour.

Partner rates grew in major cities from 2018 to 2019, with partner rates in New York increasing 6.9%; rates in Boston increasing 5.9%; rates in San Francisco increasing 5.7%; rates in Washington, D.C., increasing 5.2%; and rates in Chicago increasing 4.7%. Miami, Minneapolis and Phoenix all had partner rate growth below 3% in 2019.

The report also studied the consolidation of outside counsel, finding that for 58% of companies in its data pool, 10 or fewer law firms accounted for more than 80% of external legal bills. This number is similar to the consolidation figures in previous studies. Manufacturing companies; professional, scientific, and technical services companies; and retail trade companies had high degrees of outside counsel consolidation, while the insurance industry had a lower degree of consolidation.

As clients reexamine relationships with their law firms this year during a recession, Satkunas said the industry may see more discounted bills. And the CounselLink data is bearing that out. The report found a trend of increased discounting in the past few months of 2020, with more than 16% of bills discounted in May, a threshold normally crossed only at the end of the year.

However, Satkunas added she was hopeful that more firms will work with clients to adopt alternative fee arrangements, which have grown in popularity in recent years. In 2019, 12.1% of matters were billed with an alternative fee arrangement, up from 9.2% two years ago, and she said there is now an opportunity for firms and clients to be more creative.

"Every time I see a bump [in the share of matters billed under a form of alternative billing], I'm hopeful that we're finally moving away from talking about alternative fee arrangements and starting to embrace them," she said. "We're seeing that uptick in invoices being discounted, and I hope those two things go hand in hand: that more creative pricing also comes into play."