Tender tug towards competition

Anthony Armitage discusses the problems of restrictive practice and claims that firms could self-regulate to adapt to free market competition

In March 2001 the Office of Fair Trading issued a critical report on the lack of competition in the legal profession and called for the removal of restrictive practices.

Now the Law Society Council has set as its objective the abolition of rule 4 of the Solicitors' Practice Rules, which would allow employed solicitors to advise third parties.

The underlying theme seems to be a gradual dismantling of the traditional structures of the profession and progress towards free market competition.

The driving force comes from the regulators, who champion the interest of consumers.

It implies that the profession is unwilling or unable to implement change itself.

However, it is wrong to assume that unrestricted competition does not already exist in the profession.

Public sector tenders for legal services, under various guises, have existed for many years.

Invitations are issued publicly, resulting in large numbers of participants, offers are submitted by way of sealed bids and the contract is usually awarded to the lowest bidder.

These tenders serve as a measure of how market forces work in the buying and selling process.

As a director of FirstLAW, I have sat as an independent assessor on numerous legal tender interview panels.

Using my previous experience from 12 years in private practice, I have gained a unique insight into law firm selection techniques and the application of competition principles.

The conduct of a tender, without in-depth knowledge of the workings of private practice, will not ensure competition on a level playing field.

Any buyer of legal services needs to be armed with a high degree of market intelligence to achieve best value from the process.

First, select participants.

This can be done by published notice or special invitation.

There is rarely a shortage of volunteers - few law firms do not seek to generate new business.

The difficulty is usually in narrowing the field to a manageable number.

The procedure for short-listing should be fair and must comply with applicable regulations.

Interviews give the client an opportunity to explore in detail the experience and expertise of firms and their suitability to act for the client on the specified work.

Ultimately, to prove its worth, any tender exercise should create an independently verifiable audit trail of the decision-making process.

Participating law firms appear to recognise the competitive tender environment they are working in by offering reduced rates, particularly to public sector clients.

In my experience the discount offered on an hourly rate can be up to 50.

With varying degrees of prompting, some firms are willing to discuss fixed and even capped fee arrangements.

However, the reluctance of most firms to volunteer the adoption of a risk sharing fee structure and the frequent requirement of confidentiality regarding the details of discounted rates or 'special deals' mean that competition is distorted.

This raises an immediate concern.

If public sector clients are given preferential treatment, the law firms must be overcharging the private sector or using the private sector to subsidise the public sector.

It is not surprising that the regulators want to intervene.

Through sophisticated legal tendering, most free market imperfections can be corrected.

As an independent law firm operating such a service since 1999, FirstLAW has shown how harmful restrictive practices can be overcome from the inside - through innovative application within the existing regulatory framework and without the need for legislative reform.

By showing a willingness to participate in such tenders, law firms can show the ability of the profession to self-regulate.

Anthony Armitage is the chief executive of FirstLAW, and sits on the national executive of the Law Society Commerce and Industry Group