The more things change, the more they remain the same.

 

LexisNexis recently announced the release of its 2021 Enterprise Legal Management Trends Report. In its eighth year, the Trends Report, according to LexisNexis, is based on an analysis of more than $40 billion in legal spending, almost 8 million invoices, and more than one million matters.

 

This year’s report provides updates on its six critical billing related metrics. It is based on 2020 charges billed by outside counsel. And it includes an analysis of the impacts of the COVID-19 crisis. The report pulls from several granular subcategories of matters to provide more meaningful comparisons. These subcategories include litigation, intellectual property, mergers and acquisitions, etc.

 

The key findings:

 

  • The largest firms continue to get richer and do more high rate work. Firms with more than 750 lawyers continue to account for the largest share of U.S. legal spend. In 2020, 49% of outside counsel fees was paid to the largest 50 firms, consistent with results from previous years. Also, the three matter categories commanding the highest partner rates are mergers and acquisitions, regulatory compliance and finance, and loans and investments.

 

  • Consistent with the above, the larger the firm, the higher the timekeeper rate and the greater the 2020 rate increases: partners working in high-rate practice areas had the highest average rate increases in 2020. Regulatory and compliance rates showed the highest growth at 4.1% on average. The next highest average partner rate increases occurred in Corporate (4%), Finance, Loans, and Investments (3.9%), and Mergers and Acquisitions (3.9%) matters. The Categories with the lowest rate increases: litigation and insurance work. Only class action litigation tolerated rates above $450 per hour.

 

  • Alternative fee arrangements (AFAs) continue to increase and gain favor among corporate counsel. In 2020, 16.8% of matters had some portion of their billing under an arrangement other than hourly billing. According to LexisNexis, the percentage of AFAs has been gradually rising over the years. In 2020, AFAs were utilized for more than 10% of matters in each significant practice area except Commercial. (Commercial matters were billed via AFAs in 9.9% of matters 2020). According to Kris Satkunas, Director of Strategic Consulting for CounselLink and author of the Trends Report, “it’s notable that legal departments continue to look for new vehicles—including AFAs—to lower costs, make budgets more predictable, and better manage their capacity. Even the largest firms will be under pressure to work with clients to achieve these goals.”

 

It’s noteworthy, though, what types of matters were billed through AFAs. Only employment and labor and insurance matters had matters billed with AFAs over 15% of the time. This reflects the fact that these matters are predictable. And, in the case of insurance companies, there is sufficient data to develop valid AFA models. Use of AFAs in all other categories showed an only modest increase.

 

Law firms continue to raise rates with little restraint

 

The key takeaway from all this for me: despite all the talk about a new normal and increased client pressure to cut costs, law firms continue to raise rates with little restraint. And raise them with apparently little push back from the client other than maybe some bitching and moaning.

 

And what’s really ironic: in a year where many firms reported increased revenues and profits and reduced costs, they STILL saw fit to increase rates!

 

Law remains one of the few business that never reduce their rates even in bountiful years. Apparently “Sharing is caring” is not in lawyers lexicon.

 

Bottom line: it looks like it’s business as usual. Even Satkunas admits, “as we emerge from the global pandemic, the high-level takeaway from a revenue perspective is that 2020 was business as usual for most law firms.”

 

Lawyers and law firms continue to raise rates just like they always have. The billable hour still generally rules in most practice areas. The viability of this business model will continue to chill innovation and the adoption of legal technology.

 

The more things change, the more they remain the same.