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Smaller clients set to suffer as firm forges ahead with strategy to focus on most active relationships.
Allen & Overy (A&O) is going against City trends by planning to increase its London billing rates in a bid to cover escalating costs and maintain profit.
The discussions about increasing charge-out rates are taking place as major magic circle clients such as Barclays are seeking to cut their own costs and legal spends (The Lawyer, 26 January).
A&O global managing partner Wim Dejonghe said: “You sense what the market does and our actions will definitely be marketconformed.
We’re in contact with clients and we’ll take an intelligent decision.” The proposal is being considered by the firm’s management board and a final decision on the matter will be taken when the firm’s 2009-10 budget is drawn up in May.
Dejonghe insisted that the firm had not yet decided whether to increase rates, but he added that a decrease was unlikely. He declined to comment on the rationale behind the discussions.
It is understood that A&O is currently negotiating fee deals with clients, with strong relationship clients expected to be exempt from the potential rate increases.
In its 2007-08 annual report A&O outlined how the relationships with its 250 most active clients had become more valuable as time went on. The report stated that average work volumes increased around three-fold once the client has been in the top 250 for between four and five years.
“We therefore direct most of our investment in client relationships towards building our core, long-term client base,” said the report.
The firm’s smaller clients are likely to bear the brunt of any fee increase.
Consultant William Arthur of Kerma Partners said the strategy could bolster the firm’s relationships with its key clients.
“This could very possibly be part of a process where actually the end result will be, ‘we end up with fewer clients, but we end up much closer to those fewer clients’,” said Arthur.
He went on to say that, by upping rates, A&O was probably trying to focus on key clients with enhanced service levels, adding: “In the current environment that’s what firms absolutely should be doing.”