Setting charge-out rates for mediators is a complicated and sensitive issue. In the UK the market is so oversupplied that if the number of commercial cases available were distributed evenly among accredited mediators, no mediator would be handling more than one a year. Under such market conditions, pricing is emotive, and competition sharp.

Logically enough, the mediation profession looks to other dispute resolution professions for benchmarks against which to measure fees. Such comparisons, however, demonstrate that mediation is some distance off the pace. City of London litigation partners now charge headline rates of between £500 and £700 an hour. Over the course of a day’s mediation, this survey demonstrates that the bracket of mediators who might expect to work on the same cases charge on average 60% of partner rates. Hour for hour, the financial value the UK’s best mediators attach to themselves is equivalent to a mid-level City of London associate.

In the case of a two-party dispute the mediator’s cost to the client is half that of a mid-level associate, and frequently less in multiparty disputes. Even before approaching the question of what value mediators can bring to disputes, given these facts, the conclusion that mediators have priced their services at too low a rate is hard to avoid.

The obvious counter to that argument is that mediators are only charging what the market will sustain. The reality however, may be more complicated. According to Edward Rushton, head of economics at Towerhouse Consulting, pricing in the mediator marketplace follows a number of patterns characteristic of a ‘nascent market’ in which prices have yet to find their correct level. ‘Setting a price in nascent markets where relevant benchmarks and precedents don’t exist always involves an element of guesswork,’ he says ‘because both buyer and seller lack the information necessary to judge the value of the service correctly.’

Dramatic price shifts in nascent markets are more commonly seen in the technology sector where different products are brought to market and priced irrespective of traditional yardsticks of manufacturing and distribution cost. In such a scenario, the first player into the market picks a best-guess price, and competitors follow that lead. The market remains competitive, Rushton believes, but prices can be markedly different to those the market ultimately determines.

A number of features of the mediator marketplace suggest that it remains in an uncorrected, nascent phase. Rushton identifies pricing clusters as a key characteristic of such a market: ‘Looking at the day rates mediators charge there is a distinct cluster around the £4,000 mark; then other clusters where pricing is set by providers like the National Mediation Helpline. In a mature and competitive market, one would expect to see a greater range of prices.’

Nascent markets, of course, mature and evolve as the market grows more familiar with a new product. A number of factors unique to the mediation marketplace could be frustrating this process of price correction. First, intelligence on pricing is hard to come by. To form a clear view of the market, mediators need a wide frame of reference, and although mediators might discuss pricing on a one-to-one basis, groups and panels have been justifiably wary of such discussions for fear of exposing themselves to allegations of price-fixing and anticompetitive conduct. Secondly, mediation, for all its infinite flexibility and variety is sold – especially at the lower end of the market – as a fixed-price commodity irrespective of the qualities of the mediator. Defining rates relative to the sums in dispute creates more pricing clusters and resists the market’s attempts to define a meritocracy.

According to Rushton, if the market is to make a transition from one which discriminates on quality rather than price, it can only do so by supplying the market with better information. Again this transition is frustrated by certain factors unique to the market. First, the kind of information the market requires has traditionally been the preserve of service providers, which understandably have sought to retain rather than publicise this information. Secondly, although a direct market has evolved for mediators, it is one which conspicuously favours the few who have made themselves known and memorable to buyers. Law firms appointing direct are almost entirely dependent on dubious anecdotal evidence about mediators’ performance, and therefore lack the confidence to appoint from a wider pool. Although firms are interested in recording better data about mediators’ performance, some fail to do so for fear of running foul of data protection and libel laws.

Insufficient data serves to keep prices at an inefficient level which does the market little credit, and puts too much work into the hands of too few. Mediators generally, and paradoxically service providers, would benefit from better market intelligence.

What should mediators charge?

On an objective basis, given the relative workload of mediators and litigation partners on the day of the mediation, mediators should not be charging clients any less. Doing so is justifiable not just on workload, but also on value-added. On a major commercial dispute, therefore, where partners are billing £6,500 over the course of a ten-hour day, mediators should bill the same.

Achieving parity with the highest paid lawyers in room is a minimum obligation to the profession. Whether this sum should be billed to each party or split between them raises more complex questions. On a value-added basis, economists and accountants contacted by The Mediator believe mediators would be justified in doing so. Likewise, as a proportion of the legal spend in a case, the mediator’s fee is often so small that doubling it would make little difference.

Mediators would, however, open themselves up to criticism for greed. But, if those able to sustain such rates were to take on fewer mediations, not only would they counter arguments about greed, but they would be responding positively to one of the market’s most consistent criticisms. CMS Cameron McKenna partner and head of litigation, Tim Hardy, prefers this scenario: ‘It would be better if the mediators charged at a higher rate and were therefore able to do fewer mediations. I’m happy to pay a commercial rate,’ he says, ‘but I want a rested and well briefed mediator who’s been paid to put in the proper preparation.’

What mediators do charge

For this survey, The Mediator approached every mediator ranked in the 2007 edition of The Legal 500. The vast majority were forthcoming with details and, as publishers, we are grateful for the profession’s candour.

Day rates mediators quoted were broadly similar when adjusted for the fact that some mediators quote on the basis of a 10-hour day and others assume an eight-hour day. Charging for additional time on the day is relatively common, although some mediators take the view that their fee is for the duration of the mediation regardless of how late it runs.

How mediators choose to bill for preparation time varies widely. The accepted wisdom is that clients are more comfortable with a fixed-fee, and some mediators offer a package which incorporates preparation time into their day rate. Mediators like Jane Player and Jon Lang incorporate all necessary preparation into their day rate; David Richbell allows for 10 hours of preparation and travel; Nick Pearson five hours; Chris Fitton, four; and Amanda Bucklow, Mark Jackson Stops and Roger Tabakin allow for three hours.

The obvious downside to package deals such as these is that if more preparation is required the mediator will either have to bill by the hour, defeating the object of a packaged rate, or lose out financially. In the latter instance the mediator has a financial disincentive to prepare adequately. The reality, however, is that most disputes can be prepared for adequately in three hours or less, and for that reason the totals in our fictional scenarios in which five hours’ preparation is quoted for err on the expensive side.

In order not to price themselves out of the market, one common practice among mediators is to quote a lower day rate for disputes where the sums involved are relatively small. We therefore envisaged two scenarios. First, a £100,000 dispute, and secondly a £1m dispute. In both instances we envisaged the mediation would last ten hours and require five hours’ preparation.

The results, with a few exceptions, demonstrate just how insecure the profession is at present. The underlying sentiment behind offering reduced rates for ‘convincing sob stories’, not charging for hours over the quoted-for eight or 10-hour thresholds, and not billing for too much preparation time is that mediators should be grateful for the work at any price. Among those mediators who did not want their rates published, a common sentiment was that clients immediately identify them as too expensive. Others still don’t have quoted rates and pitch for each job on the basis of what they think might get them the work.

Though it is right and proper that the mediation profession differentiates itself from the legal profession, the contrast with regard to fees is especially stark. The leading law firms do not compete on cost; they focus instead on getting better quality work from fewer clients, aggressively sidelining low-paying clients. They are also more bullish about charging for their time because they are confident of their quality of service and value they deliver. Equally, law firms have been unapologetic in raising their fees steeply over the last decade. The legal market is open, competitive, and good information is available about the qualities and competencies for firms and individual lawyers. The result is that Magic Circle law firms don’t drop their rates to that of high street solicitors to act for owner-managed businesses.

Until the market can identify with certainty who the top mediators are and those mediators limit themselves to the top cases and charge properly for them, mediation is doomed to a future of weakness and desperation.