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Four Reasons BigLaw is a Bad Bet

October 2, 2012
The debate over the fate of BigLaw continues to rage on.  The general consensus seems to conclude that there is a sea change occurring as we speak.  Smart clients only need four brutal facts to realize BigLaw does not best serve their interests:
  1. The average earnings for a BigLaw partner in 2011 was $1.4 million dollars (average  AmLaw 100 P.P.P.)
  2. The average billable hour per year required at a BigLaw firm now ranges from about 1900 hours per year to 2400 hours per year (up from the 1300 hours per year the ABA said would be reasonably feasible)
  3. The average billable rate for a BigLaw attorney is at least $540 per hour and an increasing number of partners now bill at over a $1,000 per hour!
  4. BigLaw overhead is a staggering $200,000 (and approaching $300K at some firms) per associate per year (this does NOT include salary)

The problem for clients isn’t how much the partners are making, but how they are making it.  A recent New York Times article noted:

The problem, many lawyers say, is “P.P.P.”  P.P.P. stands for profit per partner.  It has become the ultimate metric for measuring success among law firms.  When American Lawyer magazine began publishing a ranking based on profit per partner in the early 1980’s, it revolutionized the industry, but it also arguably led to a dangerous race among firms that left clients as a secondary priority.

In other words, the interests of law firms went from serving their clients to serving themselves. The mad rush for higher P.P.P. has led to an ever-increasing need to raise hourly rates and/or increase minimum billable hour quotas.  As I have discussed elsewhere, these high minimum billable hour quotas are unsustainable and result in massive bill padding.  To further exacerbate the problem, the firms need to cover their shockingly high overhead – and guess who pays for that – yep, the client.

Smart clients should have been in the lifeboat a long time ago, because the BigLaw luxury liner is taking on water fast.  Even a cursory examination of the above “house of horrors” reveal that a company would be better served by bringing a skilled in-house attorney onboard (for less than the cost of overhead of a BigLaw associate) and get a full year’s worth of work from them, at a fraction of the cost of a BigLaw associate.  Or better yet, bring on an Axiom attorney (or two) for a legal project and avoid incurring your own overhead.  There are a myriad of options out there, just make sure you get far enough away from that sinking ship before you get sucked under with it.

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4 Comments leave one →
  1. October 19, 2012 8:01 am

    Mike:

    As a partner in a smaller mid-size firm (approx 70 lawyer), we are always trying to develop our practice and engage in discussions with larger clients (pharma, medical device).

    However, and despite handling matters for some very large companies, with good results and a billable rate far below that of big firms, we are confronted with resistance. Despite proven results, the decision makers of large companies don’t want to be second guessed, thus making big firms a ‘safe bet’ against Monday morning quarterbacking. Hopefully this will change.

    [Comment posted on LinkedIn “Controlling Legal Costs”]

    • October 19, 2012 8:03 am

      Risk aversion and the status quo do seem to play into BigLaw’s hands. After all, those monstrous PPP numbers are the result of paying clients. There are big cracks in the BigLaw foundation, however, and the time is ripe to cherry pick unsatisfied clients. Now Mr. Rosenblatt, is your firm researching ways to free yourself from the tyranny of the billable hour?

      • October 23, 2012 7:28 am

        We have offered alternative fee arrangements, such as flat rate billing and tiered billing dependent upon the stage of litigation and complexity of the matter. In the end analysis, I suspect that to many decision makers “cya” is more important than end results and savings. I hope you are correct and that larger clients are seeing, in many instances, the benefit of mid sized firms over ‘one stop’ larger firms. In the end, the savings are greater and the results the same.

        [Comment posted on LinkedIn “Controlling Legal Costs”]

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