As if we needed any further confirmation of the dropping demand for legal services, TyMetrix, the giant electronic billing clearing house, recently reported their “LegalView Legal Market Index,” based on the purchases of legal services by the LegalView 70. These are 70 large corporate clients across eight industries, 21 of which are Fortune 500, with another 12 in the Fortune 1000, who use most of the Am Law 200 firms and more than 3,000 others, having spent $2.46 billion last year on law firm services. This report is unique in that it is based on actual dollars spent by clients, rather than reports from law firms of revenues.
The report found that second quarter 2013 demand (number of hours purchased) was down a small amount (less than 1%) and fees were up 5%. Taking the first half of 2013 together, results looked much worse: overall hours were down 12% and fees were down by 6%. The Second Hundred firms fared the best, with the AmLaw 100 following and those outside the Two Hundred doing the worst: hours were down by 19% and fees by over 10%, this in spite of average blended rates that were 6.5% higher. These results are in contrast to the slight strengthening during the second quarter 2012.
While there were small pockets of higher demand–labor and employment in the AmLaw 100 and finance and IP in the AmLaw 200, there were also stunning examples of decline. For example, these companies paid higher hourly rates for Am Law 100 New York-based corporate advice (an average of $604 for associates and $958 for partners), but those corporate hours purchased by the LegalView 70 were lower by almost half.
The speculation to explain that example was that there was not as much of this work, it was being delayed or it was being done in-house. There appeared to be little indication that the work simply moved downstream to smaller or less-expensive firms.
Whether this data reflects the continuing struggle of an economy that hasn’t yet gotten to its feet or what some call the “new normal” may yet be determined. But for now, law firms everywhere have to keep their heads firmly out of the sand and their eyes clearly on the current reality that this and other reports make clear–over the last few years and at least for the near future growth occurs only because of spectacular client service. You can no longer count on the rising of all boats on an incoming tide.