Virtual against traditional: contrasting legal aid business models

In December, Adam Makepeace, practice director at Duncan Lewis, compared his company’s way of delivering legal aid services with other models of delivery. He concluded that his model is highly efficient and the way forward for private practice wanting to work in this field (see [2009] Gazette, 10 December, 12). However, his figures don’t really make the case.

He starts by comparing the 10% profit margin that Duncan Lewis targets with the ‘rule of thirds’ of traditional partnerships, in which he says that staff costs, other overheads and partner profits are divided into three equal parts to represent the ideal type of legal business. He then uses the example of three fee-earning trainees/paralegals and one accredited supervisor undertaking contract social welfare law. He says that their salaries amounted to 49% of the billing total – the implication being that Duncan Lewis pays its fee-earners far more than the traditional one-third of fees received.

I don’t accept his definition of the rule of thirds. I was taught that one-third of a firm’s fees is allocated to fee-earners’ remuneration, one-third to other overheads (including the salaries of managers, administrators and other support staff), and one-third to partners to compensate them for any financial investment and for the otherwise unremunerated time they spend running the business.

By this definition, fee-earners at Duncan Lewis get under one-third of what they bring in (fees: £60k; salary: £18k), and as he says that the company’s profits are only 10% (presumably 10% of fees rather than a 10% return on investment), this means that its overheads must absorb a massive 57% of fees received.

Perhaps this is not surprising when you realise that for every £3 Duncan Lewis pays its fee-earners, it pays its frontline supervisors £2 before it even begins to look at other overheads. This top-heavy structure does not seem a very efficient use of public money.
Mr Makepeace contrasts the salaries of the three paralegals and a supervisor at Duncan Lewis (49% of fees) with the salaries that three supervisor-level solicitors doing the same work would be paid, which he calculates would amount to 59% of the billing total. He says this would wipe out the company’s 10% profit margin, and not only lead to its demise, but also, he believes, to the death of legal aid.

I take his word for it that Duncan Lewis cannot afford to pay its solicitors 59% of what they bring in, but I don’t accept that it cannot be done elsewhere, nor that the survival of legal aid depends on his model.

Alternative model
The business model in the firm I set up, Scott-Moncrieff Harbour and Sinclair (Scomo), is to have the work done by self-employed consultants, most of whom are senior solicitors doing legal aid contract work. They are entitled to 70% of their billing, and there is still money left over for the partnership once the overheads, including the cost of high-quality supervision, have been paid out of the remaining 30% of fees.

Scomo is a virtual firm, which Mr Makepeace acknowledges as an alternative model. However, he says that it is of limited value to the sustainability of legal aid because it relies on recruiting experienced lawyers who have gained their experience elsewhere, and as traditional firms leave legal aid, this source will dry up.

Well, yes and no. It is true that HM Revenue & Customs requires self-employed people to be able to work without day-to-day supervision, so our self-employed consultants are all experienced lawyers in their fields. However, we also have trainees who can stay on as employed, newly qualified solicitors until they are experienced enough to become self-employed, and the existing pool of legal aid lawyers should provide us, and firms like us, with a source of new recruits for at least the next 20 years.

Although our model has some limitations, it also has great strengths. Not only do clients get an excellent and expert service from experienced and committed lawyers, but the consultants are well paid (by legal aid standards), well supported, have the freedom to work how and when they like, and can develop their careers and interests without being dependent on the requirements of an employer.

By contrast, the Duncan Lewis model does not seem to offer a long-term future to many of its fee-earners. Some will have training contracts and may be able to stay on, either as fee-earners or supervisors, but presumably most will not want to stay on as permanently low-paid para-legals. Presumably the company will also want to bring in keen new recruits at regular intervals, which means either getting rid of existing employees, or continual expansion, which is not a stable business model.

I imagine that a lot of Duncan Lewis’s fee-earners are LPC graduates. If the Duncan Lewis model prevails for legal aid, for how long will LPC students opt to become legal aid lawyers, when they will have such limited opportunities of qualifying and so few career opportunities? It seems likely that Duncan Lewis’s source of good paralegals will run dry much sooner than Scomo’s source of experienced practitioners.

Mr Makepeace’s company is traditional in its reliance on borrowing to finance expansion, and in providing a service offered by employees in a traditional office, but these inflexible choices create risk in an uncertain business environment. The virtual model, by contrast, costs very little to set up and is highly responsive to changing circumstances – for example, we encourage our consultants to have other sources of income, such as training or sitting as judges, because this gives them more security and makes them more rounded lawyers. In addition, we run the firm from small, serviced offices, just big enough for our four support staff, renting by the month, so we can expand and contract the amount of space we use according to need.

In the virtual model, financial efficiency comes from getting rid of unnecessary stuff, rather than just paying less for the same old stuff. We rely on IT for this because it dissolves distance, enhances communication and enables efficient and user-friendly supervision and management. We use cloud computing, so are unhampered by the problems of maintaining, updating and renewing our IT. And because we only pay for what we use, there is no waste as well as no hassle.

A pleasurable discipline for me and my practice manager is to keep improving the firm, and making a profit, within the 30%. We know it is tough, but we are creative and enjoy the challenge. Another pleasure of this way of working is that it focuses attention on supporting the fee-earners, on the basis that attracting the best people will be best for clients, and the best people will be attracted to a set-up where they have autonomy, flexibility, interesting work in their chosen field, the company of like-minded individuals and good support.

Legal aid firms have to be business-like, but the business of legal aid is to help people who are in trouble. People in trouble need experienced fee-earners with legal and people skills, and fee-earners will best be able to provide a good service if they enjoy their work, are not under great pressure to meet targets and have a reasonable income. This traditional way of working is far more likely to meet the aspirations of solicitors of all ages than the low-wage, target-driven model described by Mr Makepeace.

I believe that this is a way of working that can benefit all firms – legal aid, high street, niche or commercial. Firms that already pay well can use this system to cut fees and become more competitive. Firms that want to attract good lawyers who value their freedom above the dubious pleasures of partnership, firms that want to retain staff with family and other commitments, can all use this system to their advantage and that of their staff and clients.

And it is not necessary to have a ‘big bang’ conversion. The most important change is a change in thinking which, if successful, will allow incremental change to suit personal circumstances. The change need not involve changing standards, ambitions or values, just changing how one goes about maintaining those standards, satisfying those ambitions and preserving those values.

Adam Makepeace responds

I suspect Lucy Scott-Moncrieff and I agree on more things than we appear to disagree on. The Scomo model is an excellent business model that is likely to deliver excellent service to clients and job satisfaction to its consultants.

However, to really make a virtue of this model in the context of a debate about the sustainability of legal aid, surely it has to be robust to the need to give all clients a voice where they are entitled to public funding. Ms Scott-Moncrieff says as much, stating that ‘the business of legal aid is to help people who are in trouble’.

My original piece focused on the model required to deliver the lowest paid social welfare legal aid services. Although Ms Scott-Moncrieff’s article is presented as a rebuttal of my arguments, she does not explain how her model would achieve this. Scomo does not offer welfare benefits, community care, debt, housing, immigration or lower paid family law services. No one can get off a bus, go into Scomo’s office and be seen by someone to help them with their problem. Its business is skewed to providing ‘higher value’ legal aid services such as child care and public law, and also ‘outdoor services’ such as mental health and prison law.

I do not doubt the commitment of Scomo’s lawyers to publicly funded work or their vulnerable clients. However, ultimately the profile of Scomo’s work really reflects the financial and flexible work preferences of Scomo’s lawyers – it does not serve the needs of people seeking advice in social welfare categories of law.

There is absolutely nothing wrong with that – but perhaps the observation goes to the heart of people’s concerns about Duncan Lewis; that its model is not designed to provide legal aid, but is rather designed to undermine lawyers.

This is not correct. A Bailii search for Court of Appeal and House of Lords reported cases will confirm that Duncan Lewis had 13 such cases last year. We currently have around 300 cases before the High Court. Our higher court advocates conduct murder trials and advocacy in many other areas of law. We unquestionably argue more cases in the Immigration Appeal Tribunal than any other firm in the country.

Our lawyers sit at the very top table in their respective fields. Failing to articulate this coherently is not a mistake we will allow ourselves to perpetuate. If this is understood, maybe people will find it easier to accept that the career path at Duncan Lewis, from caseworker to trainee to solicitor to leader in their field, is a model which both supports both legal aid and legal aid lawyers.

Lucy Scott-Moncrieff is a mental health and human rights lawyer