General counsel in India do appreciate a law firm’s need to use the hourly billing model, but with some flexibility and rationalisation, it could be much more attractive.
The ageless popularity of the hourly billing model commonly employed by Indian law firms is centred on the principle that a lawyer’s most limited and, hence, valuable resource is time. In the business of law, it makes sense for lawyers to earn profit based on time spent working on a matter.
But with growing competition among law firms, emergence of a class of boutiques and technological disruptions, general counsel are taking a more pragmatic approach to negotiating hourly billing mandates thrown down by law firms.
This does not mean that GCs are not appreciative of the need and value of hourly billing for law firms, particularly on matters with open-ended work and time commitments. But if GCs are willing to throw in the big bucks, they expect mandates to be goal-oriented, address inefficiency and accountability, and be open to rationalisation.
Reports suggest that partners at top-tier law firms in India charge hourly rates anywhere between $300 - $500, which slips down to $100 - $250 at lower-tier law firms. These rates are often discounted based on whether the client will pay in dollars or rupees, with international clients often being charged the highest.
Where scope of work and time can be defined, general counsel prefer not to agree to an hourly mandate. Dispute resolution is one example where companies tend to ask for a fixed cost – or at least hybrid cost – payment models, says Hiten Sampat, general counsel at civil construction giant Patel Engineering. Costs can be fixed for drafting documents and court/arbitration appearances, but firms prefer to bill hourly for undefined work that can take substantial amounts of time, like research in high stakes or complicated disputes, Sampat says.
On transactional work, law firms push for hourly billing, particularly in high-value deals. This is particularly true when it is difficult to assess the length of negotiations, says Smriti Subramanian, general counsel at e-commerce company Snapdeal.
“Law firms insist on hourly billing where it’s difficult to assess the time or effort,” she says. While Subramanian appreciates the need for law firms to bill hourly in such cases, she says rationalisation is key in keeping costs feasible and law firms accountable.
RATIONALISING IS KEY
When negotiating mandates with law firms, Subramanian looks at various measures such as rationalising the size of the team on the transaction, rationalising hours spent by multiple team members on calls and meetings, rationalising time sheets submitted, as well as ensuring the firm provides a reasonable pre-estimate and revises hourly rates in case of over-runs and delays.
Another GC at a prominent Indian tech company says on condition of anonymity that in M&A deals, she prefers to have billing caps based on scope of work and time spent, to ensure efficiency and goal-driven work from law firms. “Where dynamic negotiations are required, we also fix half and full-day rates for the partner (with no overtime rates). We also get a blended rate for the negotiations phase, and normally only the partner’s time will be counted even if more than one person attends along with the partner,” she says.
Blended rates and single-person billing are popular approaches among GCs, especially at larger organisations that undertake long-term mandates with large scopes of work. Blended rates are a single rate charged across the board by law firms for all levels of partners and associates. This prevents partners from charging exorbitant rates for hours spent on the matter.
General counsel also negotiate to be charged for a single attorney’s time, even when multiple members of a team are attending a meeting or working on a matter. Partners and senior attorneys often will over-allocate associates on smaller items to give them experience or distribute workload. Billing only for a single person, irrespective of the number of associates on the piece of work, incentivises efficient allocation of resources on a matter and is cost-effective for the client.
The tech GC also adds that a detailed explanation of the scope of work from the client side, and a fair pre-estimate from the law firms on that basis, goes a long way in avoiding unnecessary cost addi-tions in hourly billing mandates.
“We like to present a comprehensive brief with our queries and then ask for a quotation before proceeding. We ask them to factor in 60 minutes of discussion into the billing after presenting the written opinion and limited follow-on questions. This makes it predictable for the law firm, too.”
Subramanian agrees that the expectation management is the prerogative of the in-house counsel and directly affects the quality and cost of work delivered by law firms.
“Quality of deliverable from external lawyers can be correlated to the ability of the in-house counsel to present the facts and relevant circumstances and present a point of view. It is the work of in-house counsel to bring pragmatism,” Subramanian says.
This is particularly true when it comes to India’s growing start-ups, which are looking to expand, and seek pragmatic, goal-oriented legal counsel with quick turnaround times.
One start-up founder says he prefers working with small firms rather than top-tier ones because of the flexibility in rates and attention to detail. He describes his experience with large law firms as one of a teacher chasing a student to finish their homework, which they don’t consider worth doing.
He says large law firms tend to focus on larger companies with larger mandates. Even if start-ups agree to pay hourly rates, they don’t get timely responses to their queries, as law firms would like to show they took time on a query in order to increase hourly billing. Smaller or boutique firms that agree
to rationalisation and discounted rates, often allocate efficient resources to a start-up’s matter and are more responsive to their needs, he says. Start-ups are looking for legal partners, not advisors, he adds.
Subramanian agrees, adding that hourly billing may not work for either a start-up or the law firm.
“Legal teams at start-ups work within spheres of many uncertainties. The culture of start-ups appreciates risk-taking skin-in-the-game approach from their investors, partners and advisors. Hourly billing by law firms without any skin in the game may, therefore, seem to fly in the face of a desired approach.”
“It would not be reasonable to expect law firms to risk their resources to outcomes that they do not own or control,” she adds.