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Poor sustainability level for top City firms, warns report

21 November 2006

The top law firms in the country have seen a large rise in profits but are showing significant weaknesses in their level of business growth and operational infrastructure, according to a survey by PricewaterhouseCoopers.

"Firms are again budgeting for a strong performance in 2006-2007, with more than 80 per cent in each size category assuming a rise in profits per partner and an increased number of fee earners," said Alistair Rose of PricewaterhouseCoopers LLP. "The strong financial performance per partner is also not necessarily seen as sustainable as a larger number of firms in the top 25 are predicting an increase in their partner numbers, although the top 10 remain more conservative, with only half expecting to have more equity partners but a large majority expecting more fixed share partners."

The report also said that firms are spending more on their IT infrastructure, which they consider outsourcing. More than half in the top ten said this was an area of focus for the coming year as they look to control costs and secure competitive advantage.

Rose added: "Given that average fee income for the top 25 law firms has grown over the last three years by 48 per cent while the average partner numbers have risen by only 1 per cent, managing partners need to consider whether this model is sustainable, especially given the pressures on staff utilisation and retention rates".

The report concluded that only a quarter of the top ten law firms by revenue limit their liability on assignment. Two-thirds believe that clients resist it, whereas half say partners resist it and a third said they see no need for it.

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