Posted Nov 19, 2009 05:24 pm CST
Price wars have broken out among large law firms.
Desperate to bring in new business, some firms are offering “loss leader” bids that may turn out to be unsustainable, according to managers of 15 large law firms responding to a survey summarized at the Legal Business Development blog.
Legal business consultant Jim Hassett writes that he learned of the price wars when he decided to throw in a “loss leader” question in an alternative-fee survey of AmLaw 100 firms. He included the question on just 15 surveys, and all 15 firms responded that they had seen the price wars, he writes on his blog.
Hassett asked this question:
“There is a lot of price pressure these days, and some say it is leading firms to bid on projects as loss leaders in a way that is not sustainable. Have you seen any examples of this?”
Hassett was astounded by the unanimous response. “I have never heard 15 lawyers agree on anything else before this,” he wrote.
One firm manager told of hearing stories about “well-established New York firms” telling clients they will not be underbid. Another told of firms offering “drastically” lower hourly rates and other fee-cutting proposals.
“Some firms will do all of the discovery in a case for free, and then take the case on a fee basis from there, or will charge half of their hourly rate for the first phase of the case,” the firm manager reported. “We’ve also heard about some firms that have actually said that they will do [motions] for free, or they will do the motion work at 30 percent, or some other drastically discounted rate like that, because they’re really hungry to get work.”
Some respondents said law firms were likely cutting prices to keep people busy, or possibly because they don’t know what they are doing. One manager told of a competitor’s bid for work that was likely unsustainable.
“And there are really only two or three answers as to why they did that,” the manager said. “One is a loss leader. The second is sheer stupidity. And the third is a willingness to take an extraordinary risk.”