Local law firms see fee gap narrow with foreign rivals
That trend will likely continue as the sector consolidates and a few, big name Polish firms expand, industry members said. These are just further signs of maturity in the sector, where the bread and butter of billable hours has moved away from privatization and other state-related work into the private sector mainstay of mergers and aquisitions work.
"Many firms are rendering services to companies which have foreign participation and are accustomed to higher fees," said Lech Żyżylewski, partner at Wierzbowski & Co. "But they also demand a higher quality of services. The rates reflect this."
At the start of the decade, the discrepancy between hourly fees charged by domestic and international companies was quite distinct. While an hourly consultation with a partner at S. Sołtysiński, A. Kawecki & A. Szlzzak Doradcy Prawni was around at least a third cheaper than with a foreign competitor, now the gap is a lot smaller, said Andrzej Szlzzak, principal partner with the law firm. At the associate level, there is little difference at all, he said.
While the firm charges between $200-$300 per hour for consultation with a partner, the fee for a senior associate comes to $160-$200. Partner consultations at an international law firm can come to $400 per hour, said Żyżylewski, whose firm co-operates closely with accounting giant PricewaterhouseCoopers.
Although foreigners brought know-how, such as management skills, they have less senior Polish partners, giving Polish companies an edge over the international giants, Szlzzak said. "This may be responsible for some difference in quality. Senior Polish lawyers have experience that can't just be acquired in a very short period," Szlzzak said. "We know Polish law better."
However, the narrowing of the fee gap is not broad based, industry members said. The club of higher charging outfits includes firms that have built relations with international outfits, said Małgorzata Kacperska, partner at Drzewiecki, Tomaszek i Wspolnicy.
These domestic firms have hooked into a network of law firms, or are cooperating with auditing firms and financial advisers, Kacperska said. The rising fees result from growing organizational costs and higher target figures set by company owners, she said. "The pressure on partners and senior lawyers to get clients for these fees is so big that I think some people want to leave," she added.
Working with large, foreign legal and auditing firms is nothing new, industry members said. However, regulations forbidding auditing firms from undertaking legal work has helped cement permanent co-operation between Polish firms and Big Five accounting and consultancy firms, they said.
While these companies are prevented from merging, the services provided are exclusive to a certain extent, said Tomasz Gizbert-Studnicki, president at Studnicki, Pleszka, Ćwi±kalski, Gorski. Such companies include Domański, Szubielska i Wspolnicy Kancelaria Prawnicza, the 'limited partner' of Arthur Andersen, and Furtek & Co. which has a similar relationship with KPMG. Wierzbowski & Co. is the correspondent law firm of PricewaterhouseCoopers, Żyżylewski said.
"Our rates were always comparable to Allen & Overy, Clifford Chance, and White & Case," Żyżylewski said. "We provide services to the same sort of clients, foreign investors." But he acknowledged that the gap between prices in general will have to diminish as the market normalizes. "Such a trend is very probable," he said.
Another measure of normalization is consolidation, and as the market solidifies behind a select number of major players, rates will also likely rise, industry executives said.
"Whoever wants to survive has to build a big firm and not stay alone," Kacperska said. And while there have been no recent mergers to speak of, negotiations are underway, she said. "International law firms are looking for mergers, it gives them the possibility for new, very professional teams," Kacperska said.
In addition, Polish firms attached to the multinational accounting and consultancy firms may also be looking to merge in the not too distant future. "Mergers may happen within the area of law firms which work with the Big Five," Żyżylewski said. "These firms are still in the stage of development. I can't exclude that they will merge with smaller firms." However, he would not predict when this might happen.
Foreign firms are looking to recruit well-established senior Polish lawyers who have good relations with politicians and share common educational backgrounds, industry members said. The same is true among Polish firms, so to keep and recruit experienced staff, domestic firms need to pay competitive salaries, they said.
The competitive nature of the staffing market is exemplified in recent personnel moves. After one partner and 10 lawyers left the former Furtek, Palinka & Zieliński firm to join Domańska, Szubielska i Wspolnicy this spring, lawyers from Ernst & Young's legal branch jumped ship soon after to sign on with the renamed Furtek i Wspolnicy. Also a few months ago, lawyers from Amhurst Brown joined top Polish legal firm, Wardyński i Wspolnicy, Żyżylewski said. While internal problems within the companies concerned and more interesting client bases had played a part in the moves, the question of money had also been a factor, he said.
Business is currently being fueled by litigation and mergers and acquisitions, with the latter being where the real money is, industry executives said. Lawsuit work is increasing, and such litigation depends on expertise and knowledge that only experienced senior Polish lawyers can offer, but they don't bring in the revenue they should, partners said.
"Litigation is not so profitable," Żyżylewski said. A lot of time is spent on examining such cases and supporting them before the court, he said. Moreover, the process is difficult to define in terms of time and resources because Polish courts work badly, which further drags out the process.
That has influenced the way litigation rates are constructed, Kacperska said. Unlike in corporate work, where both client and partner can control what should be done in the allotted time, the time limit in litigation suits is unknown from the outset, making agreed lump-sum payments a necessity, she said.
The most demand for services comes from foreign firms and their Polish subsidiaries acquiring other businesses, industry executives said. The M&A business makes up more than 50% of their work, they said.
"Foreign clients know they need lawyers for transactions, Polish companies often think that they don't," said Gizbert-Studnicki. At his firm, 80% of the client base is made up of foreign firms and subsidiaries. However, he said that his firm was still too expensive for Polish clients.
As the company gained more expertise in acquisitions, the business has helped them to win more and more clients by word of mouth, given the ban on legal firms advertising their services.
While 80% of the firm's work has concentrated on privatization deals from 1991 onwards, involving purchases from the Treasury Ministry, over the past three years, private sector M&A transactions have become increasingly prominent in the firm's day-to-day activities, he said. Such work requires a vast concentration of lawyers on acquisition projects and detailed knowledge of the sectors involved, accounting for further rises in legal fees, Żyżylewski said.
"Many firms are rendering services to companies which have foreign participation and are accustomed to higher fees," said Lech Żyżylewski, partner at Wierzbowski & Co. "But they also demand a higher quality of services. The rates reflect this."
At the start of the decade, the discrepancy between hourly fees charged by domestic and international companies was quite distinct. While an hourly consultation with a partner at S. Sołtysiński, A. Kawecki & A. Szlzzak Doradcy Prawni was around at least a third cheaper than with a foreign competitor, now the gap is a lot smaller, said Andrzej Szlzzak, principal partner with the law firm. At the associate level, there is little difference at all, he said.
While the firm charges between $200-$300 per hour for consultation with a partner, the fee for a senior associate comes to $160-$200. Partner consultations at an international law firm can come to $400 per hour, said Żyżylewski, whose firm co-operates closely with accounting giant PricewaterhouseCoopers.
Although foreigners brought know-how, such as management skills, they have less senior Polish partners, giving Polish companies an edge over the international giants, Szlzzak said. "This may be responsible for some difference in quality. Senior Polish lawyers have experience that can't just be acquired in a very short period," Szlzzak said. "We know Polish law better."
However, the narrowing of the fee gap is not broad based, industry members said. The club of higher charging outfits includes firms that have built relations with international outfits, said Małgorzata Kacperska, partner at Drzewiecki, Tomaszek i Wspolnicy.
These domestic firms have hooked into a network of law firms, or are cooperating with auditing firms and financial advisers, Kacperska said. The rising fees result from growing organizational costs and higher target figures set by company owners, she said. "The pressure on partners and senior lawyers to get clients for these fees is so big that I think some people want to leave," she added.
Working with large, foreign legal and auditing firms is nothing new, industry members said. However, regulations forbidding auditing firms from undertaking legal work has helped cement permanent co-operation between Polish firms and Big Five accounting and consultancy firms, they said.
While these companies are prevented from merging, the services provided are exclusive to a certain extent, said Tomasz Gizbert-Studnicki, president at Studnicki, Pleszka, Ćwi±kalski, Gorski. Such companies include Domański, Szubielska i Wspolnicy Kancelaria Prawnicza, the 'limited partner' of Arthur Andersen, and Furtek & Co. which has a similar relationship with KPMG. Wierzbowski & Co. is the correspondent law firm of PricewaterhouseCoopers, Żyżylewski said.
"Our rates were always comparable to Allen & Overy, Clifford Chance, and White & Case," Żyżylewski said. "We provide services to the same sort of clients, foreign investors." But he acknowledged that the gap between prices in general will have to diminish as the market normalizes. "Such a trend is very probable," he said.
Another measure of normalization is consolidation, and as the market solidifies behind a select number of major players, rates will also likely rise, industry executives said.
"Whoever wants to survive has to build a big firm and not stay alone," Kacperska said. And while there have been no recent mergers to speak of, negotiations are underway, she said. "International law firms are looking for mergers, it gives them the possibility for new, very professional teams," Kacperska said.
In addition, Polish firms attached to the multinational accounting and consultancy firms may also be looking to merge in the not too distant future. "Mergers may happen within the area of law firms which work with the Big Five," Żyżylewski said. "These firms are still in the stage of development. I can't exclude that they will merge with smaller firms." However, he would not predict when this might happen.
Foreign firms are looking to recruit well-established senior Polish lawyers who have good relations with politicians and share common educational backgrounds, industry members said. The same is true among Polish firms, so to keep and recruit experienced staff, domestic firms need to pay competitive salaries, they said.
The competitive nature of the staffing market is exemplified in recent personnel moves. After one partner and 10 lawyers left the former Furtek, Palinka & Zieliński firm to join Domańska, Szubielska i Wspolnicy this spring, lawyers from Ernst & Young's legal branch jumped ship soon after to sign on with the renamed Furtek i Wspolnicy. Also a few months ago, lawyers from Amhurst Brown joined top Polish legal firm, Wardyński i Wspolnicy, Żyżylewski said. While internal problems within the companies concerned and more interesting client bases had played a part in the moves, the question of money had also been a factor, he said.
Business is currently being fueled by litigation and mergers and acquisitions, with the latter being where the real money is, industry executives said. Lawsuit work is increasing, and such litigation depends on expertise and knowledge that only experienced senior Polish lawyers can offer, but they don't bring in the revenue they should, partners said.
"Litigation is not so profitable," Żyżylewski said. A lot of time is spent on examining such cases and supporting them before the court, he said. Moreover, the process is difficult to define in terms of time and resources because Polish courts work badly, which further drags out the process.
That has influenced the way litigation rates are constructed, Kacperska said. Unlike in corporate work, where both client and partner can control what should be done in the allotted time, the time limit in litigation suits is unknown from the outset, making agreed lump-sum payments a necessity, she said.
The most demand for services comes from foreign firms and their Polish subsidiaries acquiring other businesses, industry executives said. The M&A business makes up more than 50% of their work, they said.
"Foreign clients know they need lawyers for transactions, Polish companies often think that they don't," said Gizbert-Studnicki. At his firm, 80% of the client base is made up of foreign firms and subsidiaries. However, he said that his firm was still too expensive for Polish clients.
As the company gained more expertise in acquisitions, the business has helped them to win more and more clients by word of mouth, given the ban on legal firms advertising their services.
While 80% of the firm's work has concentrated on privatization deals from 1991 onwards, involving purchases from the Treasury Ministry, over the past three years, private sector M&A transactions have become increasingly prominent in the firm's day-to-day activities, he said. Such work requires a vast concentration of lawyers on acquisition projects and detailed knowledge of the sectors involved, accounting for further rises in legal fees, Żyżylewski said.
