Study: Demand for Legal Work Down 5 Percent This Year

, The Am Law Daily



Corporate clients paid for fewer hours and spent less overall during the first nine months of 2013 than they did a year ago. During that period, Am Law Second Hundred firms picked up market share. And, despite the drop in demand, law firms were able to once again increase their billable rates.

Those are the headlines from the latest LegalView Legal Market Index. The Index is based on the purchases of legal services by 70 large corporate clients spread across eight industry groups ranging from financial services to health care to industrials to technology. The LegalView 70 consists of big companies: 21 are in the Fortune 500; another 12 belong to the Fortune 1000. These are clients that hire a lot of firms: In each quarter these companies used 181 to 183 of the Am Law 200 firms and more than 3,000 others. These 70 clients spent $2.46 billion last year on law firm services, with $1.3 billion of that going to the Am Law 200 firms. TyMetrix, the giant electronic billing clearinghouse and data analytics and advisory company, produces the Index.

According to the Index, demand for hours dropped by 5 percent from about 6.1 million in 2012 to 5.8 million in the first nine months this year. Total spending also decreased from $1.886 billion to $1.847 billion, a drop of about 2 percent. The biggest and smallest firms took the biggest hits. Among the Am Law 100—the nation’s top-grossing firms—hours were off by 6.4 percent and fees by 3.5 percent. Among firms outside the Am Law 200, hours were down by 5.7 percent and fees by 2.5 percent. The Am Law Second Hundred firms—those ranked 101-to-200 on gross revenues—showed the only increases. Their fees were up by 6.2 percent and their hours by 3.3 percent.

Despite those gains, the market share of the three firm groups did not shift dramatically. The Am Law 100 accounted for 40.9 percent of the total spending, a decrease of .7 percent. The Am Law Second Hundred increased their share by a full percentage point, taking 11.5 percent of the $1.8 billion clients paid during the first nine months of 2013.

The practice areas with the highest billings during the third quarter came from the Am Law 100 firms. As usual, New York-based corporate practices brought in the largest amounts of revenue. New York finance and securities associates led the pack, logging 14,474 hours for revenues of $9.36 million. Just behind them were New York finance and securities partners, billing 9,591 hours, for revenues of $9.09 million. The median partner rate was $928 per hour; the median associate rate was $645 per hour. Cumulatively partners billed 450 more hours than in 2012 while associates hours were down by 2,329.

The practice described simply as New York corporate had the highest median partner fee--$950 an hour. But it took a big dip in hours during the third quarter. Partner hours were down by nearly 4,000 hours and corporate associates were off by 22,882 hours. During that period associate fees plunged by $11.5 million. (Click here for specific practice area and metropolitan area breakdowns.)

Of the 56 practice groups tabbed by metropolitan area for which clients paid $1 million or more during the third quarter, 28 were in Am Law 100 firms. The Second Hundred firms had only two in that category. The remaining 26, mostly insurance defense and intellectual property work, were divided among firms outside the Am Law 200.

While hours were down, paid rates increased across all the firm groups by about 3 percent. The Index includes data on a variety of timekeepers including partners, associates, and paralegals. The blended rate for Am Law 100 firms increased from $466.49 per hour to $480.29. Second Hundred firm rates increased from $338.37 to $348.39. And for firms outside the Am Law 200, rates went from $233.07 to $240.52.

The LegalView Index is different from other measures of the legal market. It is based on actual dollars paid by clients, not on surveys of law firm billings. Earlier this week Citibank and Wells Fargo reported the results of their third-quarter law firm surveys. The Wells data showed an increase of 2.5 percent in gross revenues through the first nine months of the year based on information gathered from 125 firms. Citi reported a 2.7 percent increase in revenue for the same period based on a survey of 173 firms. Full year reports for 2013 will likely be available beginning in February.

What's being said

  • David

    Except for the industries represented by big law firms and 150 of the 200 US law schools most of the trends reported in the ?sky is falling on lawyers and legal education? sites and in media reports represent positive developments for some lawyers and for the society generally. I know that might seem to be a strange or counter intuitive observation but that is only if you are viewing it from within the ranks of law schools and big law firms. There have been huge improvements in information access, efficiency, research, file sharing, investigative data bases, and case management technology that make a considerable proportion of the traditional labor intensive ?scutwork? obsolete. This means fewer lawyers are required to achieve tasks and outcomes than ever before.

    So a falling ?demand? for legal services in the traditional context does not necessarily mean an actual drop in demand as opposed to a more efficient delivery of services at a more rapid rate. At the same time this has been occurring there has been a rapid increase in the use of paralegals who are quite capable of utilizing the newly available information systems and reduce the need for more expensive law school graduates. To this can be added the rise in sophisticated ?service? companies and consultants who represent a kind of ?Black Market? of providers of what traditionally have been thought of as monopolized legal services that are being provided outside the limited regulatory structure ostensibly responsible for dealing with the ?unauthorized practice of law?.

    All this also comes together in the fact that potential clients?large and even individual?now have access to the ?mysteries? of law in ways that previously were under the control of the legal profession. The upshot is that the data on a drop in demand for legal services is not adjusted for the ?new normal? [I hate that term] in which clients are doing some of what lawyers formerly did for them, lawyers are operating more efficiently, people who rarely or never received legal services or advice now have a chance to obtain some through the new technologies, a ?Black Market? has arisen outside the ?counting? system that offers significant ?legal? services, and other professionals have encroached on the offering of legally related services.

    An important added element is that lawyers under economic stress are likely to invent new ways of offering legal services at reasonable prices to previously underserved groups with the result that the overall availability of legal assistance to a wider range of Americans in need of service will be created. The bottom line is that while what is going on is generally bad for a significant number of law schools and law firms it is good for the society and will lead to wider and better service. Law schools that recognize these trends and make real rather than cosmetic adaptations will do well. Ones that don?t may not survive and will have no one to blame but themselves.

  • not available

    This 5% drop in legal demand is merely the beginning as Darwinian Legalism is in full force. Law schools are graduating smaller classes, technology has "streamlined" less efficient law firm operations and there are plenty of "hungry" overseas English speakers and writers willing to do accomplish routine lawyer tasks for a "fraction" of what prima donna law firms charge.
    Uncompetitively priced mediocre firms will fire and downsize, others will dissolve as this is the future where the "consumer" will be king again and demand dictates softer pricing...............or just fade into oblivion like the Dodo bird. David R. Morton......................

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