11 January, 2013
Filed Underfixed fees
The lobbying over the Government's proposals to slash RTA portal fixed fees has thrown up some interesting arguments. The Law Society has waded into the debate to argue that there is “substantial evidence” that the RTA portal fee should go up by £100, rather than down by £700.
The Law Society has based this on its law management section’s financial benchmarking survey which put the median cost of an employed fee-earner at £40,860, median support staff costs at £12,624 and the median spend on non-salary overheads per fee-earner at £37,992, meaning a break-even point of £97,348 per annum.
“It would be usual to calculate that a fee-earner’s billable hours at 1,100 per annum. This would result in a break even hourly rate of £88 approximately (i.e. £97,348/1,100). This is cost only and does not allow for any profit. Using a mark up of 50% (which brings a rate of return on investment of 33%), the corrected rate would be £132 per hour.”
It calculates that the proposed two-stage fee of £500 is “unjustifiable and will be unsustainable” as it equates to a rate of £50 per hour on the basis of 10 hours’ work – which is what surveys estimate an average portal case takes to complete – or less than four hours’ work at £130, which the society calculated as the correct rate for solicitors handling this work.
It said: “It would be impossible for solicitors to undertake every claim properly in accordance with the RTA protocol and their professional conduct requirements in this amount of time. To do so will result in consumers receiving a less than adequate service… It is likely that such rates will result in many solicitors simply being unable to carry out the work.”
At the same time research has suggested that the cost of acquiring personal injury cases is around £700, whether through the payment of referral fees or through own marketing costs.
This raises a number of interesting issues:
1. Firms currently undertaking this work recover fees of £1,200. From this amount an average figure of £700 is paid to acquire the case, leaving a balance of £500. The Law Society claims it is “impossible for solicitors to undertake every claim properly” for fees of this level based on 10 hours' work.
2. One possibility is that firms undertaking this work are making enormous and unsustainable losses. If so, why they continue to pay large referral fees or marketing costs to acquire such loss-making work would appear to be something of a mystery.
3. Alternatively, it may be that firms are able to make a profit undertaking this work because they handle it in a fraction of the 10 hours estimated as being necessary. That would suggest either that the 10 hours figure is a significant over-estimate or that firms handling these claims are cutting so many corners that there must be wide spread negligence throughout the legal profession.
4. Another possibility is that the Law Society’s financial benchmarking survey bears no relationship to reality for firms handling this work. I rather suspect that there are armies of paralegals handling these claims who earn a fraction of the £40,860 median salary quoted, have virtually no support staff to speak of (and certainly not costing the equivalent of £12,624 per fee earner) and who would struggle to understand what the £37,992 on non-salary overheads is spent on (certainly not free chocolate Hobnobs).