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Dutch top lawyers should expect pressure on hourly rates

Over the coming years, the biggest change within the Dutch legal system shall occur with regard to the remuneration systems and the rates charged.

In the eyes of their clients, law firms need to clearly establish which services they do and do not offer, manage projects more clearly and should operate more cost-consciously and efficiently. According to corporate lawyers, the specialist work performed by lawyers should be around 23% cheaper. This is according to a survey, which was published today, by the law firm Eversheds Faasen called Trends in commercial and legal services in the Netherlands, carried out by the consultancy firm Boer & Croon.

There is a 23% difference in perception between what corporate lawyers and law firms consider a reasonable hourly rate for complex and specialist work (€407 as opposed to €500 euro per hour); that is the conclusion of Boer & Croon. In spite of this, the survey shows that on the whole the firms are reasonably satisfied with the price/quality of the firms that they work with. Nevertheless, according to expectations companies will evaluate relations more critically. Currently this is not the case on a large scale.

Introduction of purchase management

A majority of the corporate lawyers confirms the trend towards ‘convergence’, meaning reducing the number of law firms to which strategic/complex cases are outsourced. In general up to four firms are selected on the basis of pitches. The co-operation is subsequently periodically re-evaluated. In the United States this purchase technique is already applied by 25% of the corporate lawyers to achieve better efficiency, rates and work.

Cost price of office organisation becomes competition tool

By giving cost estimates in advance and through a better price differentiation (according to type of work and type of professional, for instance more staff instead of partners), this offers top firms, working on behalf of stock-listed and international companies, new perspective to use price as a competition tool and thus become and remain competitive. This will only be possible if they themselves first gain insight in their costs and so the cost price and margins of their projects. For the years to come Boer & Croon expects more fixed price and discount agreements instead of the currently dominant systems of subsequent charging for the number of worked hours.

Connection to the market

According to Rob Faasen, a managing partner at Eversheds Faasen, the economic and social developments within and outside the Netherlands will bring about huge changes in the way the commercial legal professions must offer its services and the conditions under which the business sector will want to make use of these services.

“This report shows further proof that companies will make choices more and more consciously when it comes to the firms that they wish to work with. What type of work is given to which firm, is my lawyer affiliated with my business, and can the firm manage the large volume of legal projects efficiently and within budget? These are questions that will dominate the agenda.”

Half of the surveyed corporate lawyers – and 26% in the United States – feel that their lawyer has an insufficient understanding of their business and their company. The surveyed lawyers in the Netherlands feel differently about this.

Adriaan Krans, a researcher at Boer & Croon, conducted 35 talks with corporate lawyers/ ‘legal counsels’ (at stock-listed and international companies) and managing partners of major law firms that are part of an international network.

“In my opinion, the strategic positioning of the firms–what they do and don’t do – better insight in clients’ needs and a much better understanding of the costs (both the internal costs and the costs they charge to clients) will as far as we are concerned determine the future professionalisation that firms will have to go through and the changes that lie ahead. However the discussions show there is reason to establish that the legal profession should take more initiative, make working methods more active and improve the communication regarding the work they do, how they do it, who does it, and what it costs”.
 
According to Mr. Krans, law firms barely proactively evaluate completed legal projects, and the ‘value for money’ of trainees, according to both corporate lawyers and the own managing partners, are not always at the same level. Some corporate lawyers say they are increasingly critical about “paying for the training” of budding lawyers. The firm’s partners do not always have to be involved either, other workers can often do the work just as well and at a lower rate.

A warning for large, purely national firms

For the purely national firms, the ones without a permanent international network, sufficient work seems to exist, provided these firms make clear choices. To compete with foreign firms they will need to steer without compromise on quality in a restricted number of legal areas. For specialist offices or niche offices the market seems hopeful. Out of the surveyed corporate lawyers 70% deliberately outsources less complicated cases (e.g. labour law) to smaller offices given the better price-quality ratio.

International

A large majority (85%) views local representation in the foreign network as useful, obviously depending on the case. The surveyed persons are divided as to whether the legal profession will become more international, as was observed over the past 10 years.  Over 50% expect a new wave from the US, 40% are of the opinion that the market has crystallised. Among the respondents there is doubt about the position and development of Amsterdam as a financial centre, and whether or not there will be new, big mergers between US and UK offices.

Main conclusions of the survey:

Market

• Most companies have one or several fixed firms for complex work, but often outsource small cases elsewhere.
• The trend towards ‘convergence’ (less offices for complex cases) seems structural among others via ‘panels’ (fixed group of 4 major law firms for example).
• The policy to place small / not very complex cases with other firms will continue.
• No clear picture as to whether there will be a new wave of internationalisation among law firms.
• The added value of an international network is closely related to the case; a firm’s local imbedding is highly relevant.
• A majority feels that large, national offices without a fixed (exclusive) network should make clear choices.

Service

• Understanding the business and a strategic view are skills that are desired but not always shown by lawyers.
• For the time being, a majority of the corporate lawyers only considers limited intensification of co-operation; but the need for it does exist.
• An integrated legal project management system is largely considered to be of added value.

Quality in relation to price

• The legal counsel is reasonably satisfied with the service, but will view it more critically.
• Partner involvement is not always required: staff offer almost the same ‘value for money’; this is not the case for trainees.
• Subsequent evaluation of output is in its infancy and is a point of attention, although law firms feel differently about this.

Remuneration

• Almost EUR 100 (23%) difference in perception between suppliers and clients regarding a reasonable hourly rate for complex and specialist advice.
• Hardly any use of alternative forms of remuneration; charging by the hour is still the dominant remuneration system in commercial and legal services.
• A shift in favour of more fixed (or capped) fees is expected.
• A majority is of the opinion that offices should apply more price differentiation, also in terms of competition.
• Also in terms of (discount on) hourly rates for permanent clients the market seems to show more room for further price agreements.
• 50% believes that the rates will not continue to increase over coming years. this indicates price pressure, after an almost constant rise in the past.
• Enormous potential for improvement among lawyers regarding cost awareness and efficiency (to be further worked out)

A summary of the research report (in Dutch) by Boer & Croon is available for request on this website.