In-house: no more an overhead
Budget restrictions and financial pressures will cause many councils to place increasing demand on their legal teams to deliver efficiencies, while maintaining high professional standards. Most struggle to do this in the traditional way - by reducing overheads, removing staff or cutting service levels. So at Kent, we tried to find another way.
We simply asked: could local authority lawyers become players in the wider market and generate external income by charging or trading with, for example, council employees and members of the public, as well as private and public sector organisations? Over recent years, Kent County Council Legal Services has built up a thriving external practice based on providing high-quality, low-cost legal services to local authorities and public sector bodies across the country, which now accounts for more than 25% of its overall income and generates £1.5m a year.
It recruited and developed a flexible and highly motivated team of over 100 lawyers (many from private practice with a strong commercial nous) - a legal practice with a turnover of more than £7m and with at least 300 clients. Kent’s legal team is now well placed to match, and often exceed, whatever the private sector can offer. To achieve this, Kent has primarily used the powers contained in section 1 of the Local Authorities (Goods and Services) Act 1970 to make agreements and trade with other public bodies for the supply of legal services.
But, until relatively recently, the professional conduct rules governing local government solicitors and barristers were inequitable and outdated, with regard to their ability to work for clients other than their employers and other public bodies. And while the statutory powers for local government lawyers to charge and trade with the private sector were already established under sections 93 and 95 of the Local Government Act 2003, in reality they were restricted from doing so by their own professional body’s rules.
Rule 4 of the Solicitors Practice Rules, introduced by the Law Society in 1990, provided that a solicitor who was employed by a non-solicitor could not work for anyone other than their employer, except as permitted by the Employed Solicitors Code. The code permitted local government solicitors to work for other public sector bodies, but little else. In light of the code’s restrictions, the ability to generate additional external income for the council, its taxpayers and the wider community was extremely limited.
But now, following revisions to the code, solicitors employed in local government can act for any other organisation or person to whom the council is statutorily empowered to provide services. No longer are local government lawyers restricted to providing services only to their employers or to public bodies recognised under the 1970 act. The potential impact of revising the current code in this way is immense. It has opened up the prospect of local government solicitors providing - and charging for - legal services to anyone permitted under section 93 of the 2003 act which, using the wellbeing powers (and the much-anticipated general power of competence introduced by the Localism Act 2011), includes virtually anyone, such as the private and voluntary sectors and individuals. The ability to generate significant income from such external sources can go a long way to not only paying for the legal function, but also subsidising the delivery of frontline council services.
With the introduction of section 93 and a relaxation of the code, combined with the general power of competence and the Audit Commission’s ‘costs-plus’ approach to calculating charges, local government lawyers should now realise there are few situations they cannot target to expand their client base. It also opens up the potential for greater collaboration between local authority legal departments, raising standards and generating greater efficiency savings through achieving economies of scale and providing a healthy income generation stream - all of which will be of benefit to the councils, taxpayers and the community.
There can be few lawyers working in local government who are under any illusions about what the future holds. Just ‘doing more with less’ will not be enough, with demand for legal services rising at a time when local authorities face cuts to their budgets of 20%-40%. With the pressure to protect frontline services intense, ‘back-office’ services are under threat and more radical solutions are needed. This environment became even more challenging for legal departments in October, when the introduction of alternative business structures allowed the major outsourcing providers - among others - to own legal businesses for the first time.
This is a ‘Darwinian’ prospect - and local authority lawyers need to adapt if they are to survive. The ultimate goal could be to enable local government lawyers to form their own regional ‘hubs’, providing legal services direct not only to the wider public sector, but also to the private sector. However, this would either require the establishment of a company to deliver legal services, or the creation of teams of non-solicitor lawyers to handle private client work, neither of which (until recently) has been thought possible or even desirable.
However, negotiations with the Solicitors Regulation Authority reveal that with the advent of ABSs, this dream could become a reality. The response the legal team at Kent County Council has devised together with law firm Geldards, known as Law:Public, is a brand under which the two organisations aim to provide a cost-effective service and a viable alternative to the panel system.
General counsel forum
The role of general counsel is changing in the face of increasing pressure on in-house legal teams to take a more active role in corporate strategy. International trends point towards in-house legal teams being pushed to demonstrate commercial value, and be more accountable for operational and strategic performance.
The general counsel forum at Law Conference 2012, held in Wales on 21 September, tackles these issues and more, with general counsel from Siemens, Ben Sherman and Barings Asset Management looking at the future for corporate in-house legal teams.
This resulted in the launch of their own unique combined offering, which heralds a period of rapid change in the provision of legal services to local authorities and the public sector. Both Kent and Geldards were pursuing parallel tracks without realising it. Having seen various private sector panels set up and also complex arrangements such as the ‘hosting’ model (where local authority lawyers from one authority transfer to another, which then provides legal services back to the first authority) they felt there was scope for another model of provision. There had to be a simpler and more pragmatic solution - a ‘third way’.
Many heads of legal and chief executives in local government know that large panels are all very well, but they often fail to provide the one thing that everybody wants, which is trusted, professional relationship with personalised contacts; commercial expertise combined with public sector ethos and value. Law:Public provides the best of both worlds in terms of what the public and private sectors have to offer, with a combined roster of more than 150 lawyers and exceptional value for money.
There are many extremely valuable assets that the private sector can contribute in delivering public sector work. The problem is the prohibitive price tag that goes with this - something that local government simply will not be able to afford as belts are tightened.
By combining under the one brand, Geldards and Kent offer a much more complete package than they would as individual organisations but - crucially - at an affordable price. The target is a maximum hourly rate of £150, taken as an average of the two organisations’ rates. Clients who might have thought twice about going to Geldards before, because it may have lacked some of the areas they wanted in a law firm, will now go to the firm because they know that it has the backing of a large local authority legal department. And those who might not have gone to Kent, because they may have had some reservations about its capacity and geographic reach, will now go to them because it has the backing of a top-100 commercial law firm, with offices in Derby, Nottingham and Cardiff. The two organisations did not enter into this blind. A pilot with an unnamed local authority before the launch was sufficiently successful for them to press ahead.
In terms of structuring, the arrangements have necessarily been kept fairly informal to begin with. This is because there needs to be flexibility in the process for each partner and also to allow it to grow organically. It also allows Kent and Geldards to remain within the SRA’s regulations on joint marketing, fee sharing and charging for their services. The prospect of Law:Public converting from an affiliation into a fully fledged ABS is a distinct possibility, but Kent and Geldards are holding off exploring this and are waiting to see how the service develops ahead of committing to any such move.
It will not be long before the likes of Capita, the Co-op, the AA and others become significant players in legal services provision to local authorities. After all, management consultants have been itching to add legal services to the bundle of services such as IT, finance and payroll that have already been outsourced. The introduction of ABSs will sweep away the legal obstacles to this happening.
It is time for local authority legal teams to throw off their blinkers. The opportunities are there to be taken but few have so far done so. But there is going to be blood on the floor in the next few years, and there will be victims of the financial crisis as local authority budgets are slashed. It is time now to look at the means of survival.
Geoff Wild is director of governance and law at Kent County Council