Jim Diamond survey shows renewed pressure on fees as LW research underlines client concerns over costs

Charge-out rates at the City's top firms have remained broadly static throughout 2011, with leading firms coming under pressure to reduce rates.

New research carried out by costs lawyer Jim Diamond shows magic circle firms have reduced partner charge-out rates marginally, with average rates falling by 8% at the lower end of the range and 3% at the top in 2011. The reductions equate to an average partner hourly rate in the magic circle of between £600 and £700, down from a range of £650 to £725 in 2010.

At major City firms, base rates have leapt 13% at partner level to £425 an hour, up from around £375 in 2010; however, top-end pricing dropped by around 6%, to £600 from £640 last year.

There have been larger increases in fees at the junior lawyer level, where City firms outside the magic circle are now charging on average 14% more for lawyers with five years' post-qualification experience than last year, and newly-qualified rates have risen 19%.

Slaughter and May practice partner Paul Olney (pictured) said: "It wouldn't surprise me if there is a greater focus on associate rates than before. Care is needed in looking at rates quoted by firms as there is considerable variation according to the client, type of work and sector."

Diamond's findings show that the lowest hourly charge-out rate for a partner at a magic circle firm has increased by around 60% since 2003, when it stood at £375 compared with £600 today. With the exception of 2009, rates have broadly increased every year for which data is available.

Diamond commented: "The drop in charge-out rates in 2009 was a knee-jerk reaction because there was so little work around. However, the huge jump back in 2010 was a reflection of the lack of transparency in the market and a lack of action from in-house counsel to try and keep the rates down, which is why the same sky-high prices have remained this year."

The figures are also reflected in new research from Legal Week Intelligence, which separately shows that Mills & Reeve and Squire Sanders Hammonds are the best firms for alternative billing practices, according to clients.

Legal Week's Client Satisfaction Report demonstrates the dissatisfaction felt by clients with regards to their advisers' alternative billing practices on a broader level, with national firms outstripping their higher-charging City, US and international counterparts.

The flagship research, which canvassed the opinion of more than 1,000 clients including 78 FTSE 100 companies, saw national firms scoring an average of 6.31 out of 10 for their billing practices.

Mills & Reeve emerged as the top performer in this category, with 7.71 out of 10, followed by Squire Sanders Hammonds and Dundas & Wilson. US firms Latham & Watkins and White & Case outperformed their City rivals to complete the top five.

Among the international firms, Norton Rose topped the alternative billing rankings with a score of 6.73, followed by DLA Piper on 6.36 and CMS Cameron McKenna with 6.34. Of the magic circle, only Slaughters scored higher than the group average score of 5.7.

Norton Rose chief executive Peter Martyr commented: "We see ourselves as part of our clients' business. In a difficult market, we think it is important to find solutions together."

CMS senior partner Dick Tyler added: "Our clients are looking for transparent billing arrangements that reflect the value of the work that we do. They do not often want us to send out a bill with '£x' multiplied by the hours, they want some context to it."

The report found that clients typically rate law firms higher on quality than they do on cost issues. Weil Gotshal & Manges emerged as the top firm overall, with a score of 8.6 out of 10, but was the second-lowest scoring firm in terms of alternative billing. Other strong performers in the overall rankings include Reed Smith and Hogan Lovells.

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Average charge-out rates

Magic circle partner: £600-£700

Magic circle newly-qualified (NQ) lawyer: £300

City firm partner (outside the magic circle): £425-£600

City firm NQ to 2 years' post-qualification experience (PQE): £215-£300

Major regional and national firm partner: £325-£450

Major regional and national firm NQ-2 PQE: £175-£240

Source: Jim Diamond's Hourly Rate Survey 2011

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