Solicitors charging methods
The RIR found limited information on charging methods, but the information reviewed identified a number of different methods of charging, summarised below.
Traditionally clients were charged hourly rates, with each unit of input adding cost. Hourly rates were derived from a number of elements, including :
- “Historically the hourly rate covered the cost of the solicitor (33.3%), the office overheads (33.3%) and a profit element(33.3%). More recently it has become much more a question of what the market will pay, or sometimes what the market will bear1“.
- the individual fee earners’ annual chargeable hours target, derived from the amount of income they were expected to generate for a firm, which could vary by category of law, an experience of fee earner: “Fees will vary by individual circumstances, experience and knowledge of your solicitor, the type of advice2“.
- Guideline hourly rates (GHRs) set by HMCTS Cost Committees, applicable in certain categories. These are reviewed annually. However these are guideline only. “For Personal Injury and Clinical Negligence cases, the hourly rates charged by defendants‘ solicitors were some 20-35 percent below those charged by claimants‘ solicitors which were close to the existing GHRs. The ABI suggested that the rates charged by defendants‘ solicitors reflect the unfettered interplay of market forces and these rates should be used when setting GHRs. Second, our data revealed that the average hourly rates charged by London solicitors were below the GHRs and average hourly rates charged by National solicitors were above the GHRs3“.
- Hourly rates are usually seen as the starting point for all price discussions. Even when the work is on fixed fees, the estimation of the amount of fees used as the basis for negotiation of the fixed fee would generally start from the a calculation based on the hourly rates and the estimated hours needed for the work4.
|GHR: Solicitors>8yrs PQE||GHR: Solictors or Legal Executives >4 years PQE||GHR: Other qualified Solictors or Legal Executives||GHR: Trainees, paralegals, and equivalent||Magic Circle Partner (JDS)||Magic Circle 5 Yrs PQE (JDS)||Magic Circle Newly Qualified (JDS)||Major & National law firms Partner (JDS)||Major & National law firms 5 Yrs PQE (JDS)||Major & National law firms Newly Qualified (JDS)|
Hourly rates have changed over time accross different solicitor segments5. This shows volatility in the highest hourly rates achieved, with significant increase between 2005-2008, a sharp drop in 2009, and an increase in 2010. The general trend if for increasing hourly rates. Note also that a fee earner with 5 years’ post qualification experience has had since 2007 a higher hourly charge out rate than a partner at a Major & National Law Firm. In 2010, the Master of the Rolls Costs Committee increased some guideline hourly rates by 8%.6
Fixed fees are used across a variety of services and categories of law. They are used in legal aid and for corporate clients, but is not clear to what extent other legal services are provided via fixed fees. However there are reports of clients resisting hourly rates in favour of fixed fees7. For example a matrix of fees for clients who are employers where a case goes to tribunal.8 Alternatives include value billing which “can be defined in different ways in the legal context. The basic idea is that a firm prices its services based on an understanding of the client’s goals and perceived value of reaching those goals. The usual result is a predefined fee for a specified legal service”.9
Conditional fees are used in a variety of categories but mainly in relation to personal injury and clinical negligence.10 ”In the market for PI claimants‘ solicitors‘ services, the decision over which solicitor to use is made by the claimant—however, due to the prevalence of CFAs and BTE insurance, claimants rarely bear the cost. This reduces the incentive for solicitors to pass on any efficiency savings in the form of lower legal fees since, unlike in many other markets lower prices are unlikely to attract a greater volume of work. Fixed recoverable costs are determined by three elements: the solicitors‘ hourly charge-out rates; the grade of solicitors involved in each task; the amount of solicitor work required to settle a claim. Guideline Hourly Rates have a key role in establishing solicitors‘ hourly charge-out rates11“. One report12 indicates that these conditional fees are less profitable for legal service providers than hourly rate work.
In the 1990s, for city law firms an entrench culture of long term client loyalty and limited fee negotiation came to an end, as corporate client sought to reduce costs. Fees set against an hourly rate or by reference to the value of a transaction gave way to the price for the job, via competitive tendering13.
Range of hourly rates charged by solicitors
The 2008 Law Management Section TLS survey of 108 firms found a wide spread of charge out rates. The minimum difference across the quartile points is £41 for Commercial Litigation & Commercial Property –approximately 25% of the median rate. The highest charge out rates were unsurprisingly all in commercial work.
Estimating hourly rates achieved by solcitors
An investigation into legal aid in 2003 compared costs and prices of different types of legal work, both legal aid and privately funded. The investigation utilised the hourly price achieved in certain categories of work and found that:
- Firms who undertook criminal legal aid achieved an hourly price of £69,
- Firms who undertook family legal aid achieved an hourly price of £71,
- Firms who undertook other civil legal aid work achieved an hourly price of £69
- This compared to privately funded work of £99 per hour for privately funded family work, £83 per hour for conveyancing, probate, wills, and personal injury, £91 per hour for housing and employment work , and £106 per hour for commercial and litigation work.
The report concluded that, “different firms achieve a relatively wide range of chargeable hours is evidence of a more general point; there is a relatively large degree of heterogeneity among firms. This is particularly the case for firms with a contract to undertake Crime work. There are also noticeable differences between firms with a contract to undertake Crime versus Family versus Other Civil work.”
In terms of individual solicitor earnings, Law Society research concluded that the, “key relationship between legal practice and income is not whether or not legal aid work is undertaken but rather the proportion of time spent on legal aid work. After taking into account firm size, grade, PQE, region, hours worked and number of casework areas undertaken, solicitors spending 50% or more of their fee-earning time with legally-aided clients earned, on average, 21% less than solicitors who did not undertake legal aid work but those spending between 1% and 49% of their time on legal aid work were not found to earn less than those who did no legal aid work.”
By utilising SRA turnover data and making a number of assumptions we can make broad estimates of the Solicitors price per hour (i.e. hourly rate) charged to consumers, for all solicitors legal practices. We did this because of very limited information on the prices paid by consumers. This calculation involves the following assumptions:
- Using the number of fee earners, and assuming the firm as a whole meets chargeable hours targets, we can estimate the total number of hours billed. We use the chargeable hours targets reported in the 2010 Law Management Section survey 14covering 200 legal practices, as the basis for these estimates.
- Next assuming that the firm devotes an amount of resources proportionate to the amount of income in each area, we assign a proportion of the total number of hours to each category in which the firm reports turnover.
- Finally, by dividing the reported turnover by this estimate of hours billed, we can derive an estimated hourly rate at the firm. This will reflect an average for the firm, and as set out above hourly rates vary by grade of fee earner used. We do not have data to assign these different resources to categories of work, so treat the firm average as sufficient for gaining an insight into both the levels of hourly rate charged and the variability across size, geography and category of law.
The results suggest, based on these estimates:
- There is significant variation in hourly rates within and across categories of law.
- As size of firm increases so do the hourly rates charged. This could be a result of the following factors:
- Greater proportion of larger firms in London where prices are higher generally
- Smaller firms not meeting the standard billable hours targets,
- Larger firms exceeding standard billable hours targets.
These range of estimated hourly prices are shown in the following charts, with the average hourly rate estimated.
Conveyancing – £95
Will writing and probate – £94
Family – £89
Accident or Injury - £101
Housing – £85
Employment – £98
Crime – £78
Immigration – £59
Welfare Benefits - £73
Debt – £96
Finance and business –£112
Other - £112
Intellectual Property -£129
Charging methods for other legal service providers
The overview of how barristers set their fees for lay clients states that: “There are no formal scales of fees for barristers‘ work. Generally, barristers charge according to their level of experience and the complexity and length of time involved in any particular matter. The amount to be charged for any particular piece of work, and when the fee becomes payable, is a matter for negotiation between you, the barrister and his or her clerk15.
Barrister’s fees are set by the barrister’s clerk and reflect the complexity of the matter, the estimated time to be spent preparing and appearing before the court, and the seniority of the barrister in question. Barristers may also agree to act under a Conditional Fee Arrangement.16
There is a suggestion that higher rates of pay is linked to better service – when asked what would improve the service that they provide, 19% of barristers say better pay, 9%, more specifically, say better pay for legal aid, and 9% say better listing by courts17.
For Legal Executives:
Once they have completed their first stage of academic training (the ILEX Level 3 Professional Diploma in Law and Practice course), employers (on a court assessment of costs) can charge Trainee Legal Executives fee-earning time up to £136 an hour in London and up to £116 nationally (based on SCCO 2009 guidelines rates for summary assessment)….Once they have passed their second stage, employers (on a court assessment of costs) can charge Trainee Legal Executives fee-earning time up to £222 an hour in London and up to £158 nationally (based on SCCO 2009 guidelines rates for summary assessment).18
While the RIR found no research looking specifically at charging methods of unreserved legal service providers, investigations undertaken by the Legal Services Consumer Panel have found a range of different charging methods on offer.
- Annual service fees:
- Which? Offer unlimited legal advice from £34 per year.
- Now let’s get started offering small business unlimited legal advice calls from £375 + VAT per year.
Legal services provided free to membership organisations including Unite providing its members and their families, with free legal advice in employment, personal injury, wills and conveyancing.
Does transparency of billing impact on price?
It is not clear the impact of clarity of price has on consumers generally, and whether or not the rise of fixed fees has led to changes in prices. One study compared the impacts of different types of funding on personal injury cases. They found:
- Delay rose by 21% (157 days) for each £10,000 increase in estimated claim value
- Delay fell by 5% (38 days) for each 10% increase in the defendant’s estimated liability
- Delay fell by around 1.2% (90 days) for each 10% increase in plaintiff’s expected legal costs
- Legal aid finance increased delay by around 11% relative to legal expenses insurance, controlling for all other factors.
“The source of plaintiff finance was a significant factor determining delay (and consequently cost and settlement amounts), as a result of incentive effects on behaviour. The behaviour of litigants and their representatives is clearly influenced by the way financial risks are shared, and this must be taken into account when formulating and evaluating policy in this area.19” Another piece of research states that the pricing model based on fixed fees is seen as the key to efficiency20. The RIR found no further information on this area.