The Lord Chancellor's green paper proposes introducing a system to deliver legal aid through block contracts.

The purpose of this article is to examine some of the key issues in block contracting for civil non-family legal aid.

Some of these points are also relevant to family and criminal work, but those areas of law raise different issues which need to be considered separately.The context within which legal aid is delivered will change radically under the Lord Chancellor's proposals.

The era in which legal aid expenditure was uncontrolled and untargeted is past.

The green paper talks about working within cash limits or predetermined budgets and it is this concept which raises the first questions.If there is a set amount of money available, how is that money allocated to geographical areas and categories of law? Initially the allocation would probably be based on historical payment data with some minor modifications necessary to give effect to explicit decisions on prioritisation.

This would be augmented by information on local needs and priorities from the consultation and information gathering conducted by legal services committees, as well as by information from the Legal Aid Board's own databases.

Contracting arrangements must be flexible enough to take account of the inevitable limitations of any national predictive model applied at the local level.Once funds have been allocated to cover the predicted needs and identified priorities, decisions must be made on how to effect the actual provision of services to meet those needs in each category of work.

The existing franchise categories would need to be reviewed, refined and extended.

New categories would include mental health work, for example, and the existing personal injury category would need to be sub-divided, possibly into running down, accidents at work, medical negligence and the rest.This process of categorising work is crucial for two main reasons.

First, the more specific the definition the more similar will be the cases within the definition.

This would make it easier to predict both the likely range of cost of those cases, and the outcomes that could be expected from them.

Outcomes include the time the cases took from beginning to end, whether the case was won or lost, the amount of damages recovered, if relevant, and the level of client satisfaction.Secondly, most contracts, although specific to the defined category of work, must allow for related work to be done which is outside that defined category.

That is important for two reasons.

Clients' problems cannot also be categorised into neat boxes.

They should, so far as possible, be dealt with holistically.

The client's main problem may be housing, but there could be allied problems involving, say, debt and welfare benefits.

Lawyers should be given the flexibility to decide whether they can deal with the ancillary issues or whether the client should be referred elsewhere for more specialised help.

Providing t he flexibility to respond to developing law is also essential.

Categories of work cannot always be identified far enough in advance to enable contractual arrangements to be put in place.

In any event, we may have no idea of likely volume.

The recent expansion of work in the education and community care fields are examples.In order to provide the flexibility necessary to address these requirements a certain proportion of the contracted price could be allocated to work outside the defined category.Once the contract category of work has been defined and the degree of flexibility has been agreed, the next major issue is the relationship between the volume of work expected over the period of the contract, the pricing arrangements and the length of the contract.The contract will have to cover work that is currently done under green form as well as certificated legal aid.

How could that be translated into a volume of work expected under the contract? Clients cannot be required to arrive at pre-determined intervals, so how can fluctuations in volume be dealt with?The starting point must be historical date.

We know the volume of work generated within geographical areas over a long period of time.

However, that by itself is not enough.

The green paper envisages a possible redefinition of the dividing line between advice, assistance and representation.

The solicitor would also apply the merits test at the beginning and throughout the life of the cases to ensure that the case continued to justify public funding.Could this reduce the average time spent on cases, thus increasing the volume that can be done for the same money? If the conducting solicitor is not directed by limitations on a certificate, will counsel be used as often as now to advise on merits? What would be the implication of that? Pilot schemes will be necessary to identify as clearly as possible the effect these significant changes might have on patterns of provision and expenditure.Rules will need to be established to determine what happens if volume expectations are not met.

Clearly the board will want to redeploy money not being used to meet other needs.

However, in the course of a three or five-year contract, volume fluctuations must be expected and precipitate action to switch funding must be avoided.

There might also be circumstances where lower volume was justified by the complexity of cases taken on.

As time goes on, however, the profile of cases in particular categories will become more and more accurately reflected by case dicta stored.The pricing of contracts raises another set of complex issues.

Account has to be taken of contributions due from clients, the recovery of party and party costs and the operation of the statutory charge.

This is possible but first a simple description of the role of the legal aid fund might assist in describing how the board would approach these issues.The board, in operating the fund, acts as a banker and as an insurance company.

It operates as a banker in advancing money, as payments on account, to fund work in progress.

As an insurance company it insures solicitors and their clients against the loss of the case and, in almost all cases, the costs of the successful opponent in lost cases.

While the banking role is common to all cases, the extent of the insurance role varies enormously depending on the type of the case.

Consider these figures for the financial year 1993/94.

A total of 19,421 'running down' cases were reported to the board.

The total cost of these cases was £49.5m.

However, all but £3.7m of that was recovered from opponents.

Thus, although the board would, in its role as banker, have advanced money over the life of some, if not all, of these cases finished in 1993/94, its insurance payments amounted to £3.7m, with all other money advanced being recovered.However, the picture for medical negligence cases was quite different.

Some 12,000 of these cases were reported at total cost of £34m.

Of this, £12.5m only was recovered.

Thus the board as insurer paid out some £21.5m.What is the significance of these differences and what relevance do they have for a contracted scheme? The most obvious differences are that fewer medical negligence cases are won and costs recovered from the other side, they are also more expensive in terms of average costs.

As to their relevance to a contracted scheme, I suggest they lead us towards an approach in pricing contracts that concentrates on a fixed price for cases where costs are not recovered and an agreed funding basis for work in progress.

This would cover both the board's banking and insurance functions.The fixed price for 'lost' cases, more accurately, 'cases not won', would be less than the average the lawyer could expect to recover from the other side if the case was won.

This mirrors to some extent the current arrangements whereby a civil hourly rate of £65 applies where a claim is made against the fund, but the local going rate is allowed on party and party taxation.

The funding of work in progress would vary depending on the average length of the cases in the category covered by the contract and the volume of cases in the contract.

Thus, the efficient lawyer who made the right judgments about prospects of success and completed cases more quickly than the average would be rewarded more than the lawyer who lost more cases and took longer than the average to complete them.These are, of course, possible variations in this theme.

Payments for work in progress might be made on the basis of contracted rather than actual volume, and different average prices or case length might be agreed for different suppliers.

Better outcomes, eg significantly higher damages, could be rewarded with better terms.One caveat is important here.

We must not draw up contracts in such a way that the law is a developing thing and the boundaries need redefinition from time to time.

There will always be cases at this boundary which are lost and we must retain the incentives to do this type of work in the contracts.Decisions on financial eligibility for work equivalent to certificated legal aid would be decided by the board or its agent, and would not be the responsibility of the lawyer.

Contributions would be payable to the board and would not affect pricing or payments under the contract.

However, lawyers would be required to stop work, as now, if contributions went into arrears.

Decisions on the statutory charge would remain with the board and lawyers would have to report to the board if they thought the charge applied.How would performance under a contract be monitored? Performance can be defined under three broad headings: maintenance of the franchise standard, productivity and outcomes.

The basis of monitoring productivity and outcomes could be a straightforward reporting process backed up by sample case file adults as part of the franchise audit.

Reports on work done, possibly monthly, could record the client whose case has been accepted and the nature of the problem, perhaps reduced to an agreed set of definitions or codes.

The same report could record cases clos ed, again within an agreed set of definitions.

Thus paper communication between the lawyer and the board could be reduced to a bare minimum.Finally, what will be the flexibility in, say, a five-year contract? It is reasonable to assume that many firms will welcome the certainty of a five-year contract but would be less enthusiastic about their income from the contract being fixed for that period.

Many will want to expand.

On the other hand, the board will need flexibility to allocate funds to meet changing needs and priorities which emerge over the period.

It must keep funds available to allow new firms to gain contracts otherwise the supplier pool will stagnate.

One possible approach might be to fix the pricing arrangements and volume requirements for, say, the first two years and allow for a re-negotiation of both on a rolling basis.

Thus, in the first part of the second year, negotiations would be taking place on changes to take effect in the third year.

Similarly in the first part of the third year discussions could be around changes to take effect in the fourth year, and so on.

There are, of course, other possibilities.The process of talking to franchised firms about the issues raised in this article has already started.

There are many other important issues that I have not had space to discuss.

No doubt the Law Society will have its views on these issues.

For the board's part we are ready to listen and discuss.

Changes of this magnitude need careful thought and planning if they are to achieve the objectives set by the government.