Top firms “starting to worry” about competition from ABSs, says survey


Under pressure: firms worried about clients forcing down fees

Competition from alternative business structures has emerged as a significant worry to top law firms, a new survey has shown. 

While the finance directors at the top 100 firms were most concerned about the impact on profitability of downward pressure on fees from clients, 46% said the consequences of deregulation are a high or medium risk to profits. 

Other major risks identified by the survey, conducted by Sweet & Maxwell, included competition between firms over fees, the continued downturn in corporate work, cost overruns on fixed-fee work, late payment by clients, the credit risk of clients and competitors poaching staff. 

While few firms considered work being take in-house as a high risk, nearly two-thirds thought it was a medium risk. 

Last year, none of the respondents to the survey – which is now in its fifth year – identified the Legal Services Act as a high risk (13% this year). 

The survey said: “Whilst ‘Tesco Law’ is expected to have a much more immediate impact in those areas of law dealt with by high street law firms, over the longer term new capital attracted to the sector could fund more active competition amongst law firms for commercial work.” 

On fees, it said: “Whilst it has been common for clients to try and resist an increase in the hourly rates charged by law firms up until the recession, requests by clients to actually cut fees had been far rarer.  

“The traditional method to achieve this is for clients to ask law firms to cut their hourly fees in exchange for more guaranteed work through a place on a smaller panel of law firms. For example, last year one the world’s largest oil and gas companies cut its list of external legal advisers from 60 firms to eight – in exchange for those remaining panel members dropping their rates.” 

The survey found that the finance directors expect restructuring/insolvency, energy and regulatory work to be the fastest-growing areas of practice, with public sector, projects/PFI and construction seen as those most likely to contract.

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