Local government update: new legal services models

THE MODELS

Traditional

This is a full-service legal team serving only their own authority and local area. However well performing, if significant cuts are implemented, it is unrealistic to expect the team to engineer productivity improvements to compensate for the expected loss of staff. Service coverage or service quality, more likely both, must be reduced.

Mixed economy

Today most full-service in-house team models have been replaced by the mixed-economy model. The in-house team meets a certain level of demand and uses external service providers to assist with peaks of demand or special expertise. The authority retains a wide range of legal skills, and ensures value for money from external service providers by competitive tendering, either for single large instructions or, increasingly, by appointing a panel of external advisers, with mini-competitions for each instruction. The authority decides and controls legal spend. This model does not generate external income.

Total outsourcing

Extending outsourcing across the complete legal service means some loss of control, skills and expertise. It may achieve greater savings than the mixed-economy model, however. There is a developing market of legal process outsourcing companies such as Integreon, CPA Global and Capita, as well as traditional law firm local government teams. This model requires the authority to retain a client-side commissioning manager. Legal services may be commissioned from a single supplier or from several suppliers via competitive tender. In this model, each member of the authority's in-house team would probably transfer to an external supplier. The cost of TUPE protections and pension benefits would be factored into supplier bids. As suppliers are responsible for managing delivery, there may be greater scope for savings through innovative techniques (e.g. business process re-engineering or offshoring). The model is not usually income generating. As with any significant outsourcing, the optimum duration, management and policing of the contract must be considered, and exit risk (the possibility of the team returning in-house if the arrangement does not work out).

Shared services

This is a well-established model with savings coming from uniting two or more services into a single business unit. Operationally, staff can work from a single site, stay on multiple sites, or divide working time between multiple locations. Careful management is needed to build a cohesive team with high morale and a good co-operative ethos. For success, no one authority should dominate; treatment of staff should be transparent and fair, irrespective of their original employer. Setting up a shared service involves using HR tools such as voluntary redundancy and early retirement. Leaders of the shared service must demonstrate vision and win the hearts and minds of staff. The model focuses on cost saving. Income generation may be an optional extra.

Regional hubs and franchises

One suggested model yet to materialise is a super-level of inter-authority collaboration in which legal services for a region are delivered through a single regional hub which controls the staff on the ground locally. The need to reconcile the interests of a large number of stakeholder authorities may make it difficult to pull off.

A franchise model would also be interesting. This presupposes a central entity well-resourced and capable of setting good practice standards with a strong 'brand'. The franchise 'licence' is a commitment by the franchisee to operate to required standards, in return for access to central know how, technology, working capital, resources and other support provided by the franchisor (which might include a referral network to absorb fluctuations in service capacity). The franchisee would enjoy a degree of local operational autonomy.

In-house and private practice joint venture

A joint venture legal services business between a local authority and a private practice firm allows the public sector ethos to combine with private sector innovation and commercial disciplines. Both partners must focus on client service and enjoy enhancing their skills base. There need to be mutually agreed objectives for growing the business. Another ingredient for a win-win solution is incentivising the employee team, which can happen if the business separates from the authority.

In-house trading / alternative business structure

Some authorities, such as London Borough of Lambeth and Southwark, are reported to be exploring establishing new corporate entities to generate income. This raises some difficult issues. Currently, rule 4.15 of the SRA's Practice Framework Rules prohibits in-house local authority lawyers from servicing external clients except for other public and quasi-public bodies or local charities. This means authorities must create new corporate entities to provide the services. To the extent that the entity provides reserved legal activities for the purposes of Schedule 2 of the Legal Services Act 2007 (broadly advocacy, litigation, conveyancing, probate, notarial services, or taking oaths), or employs or holds out its staff as solicitors, it must be authorised and regulated as a solicitors practice. The managers will need to think carefully about setting up information barriers between it and the host authority, managing conflicts of interests and addressing the compliance systems and insurances they require to operate. Public procurement is the underlying problem. At set up, can the host authority just hand the new provider a contract, or is a competitive process required? What happens when the contract expires?