Local government update: new legal services models

Heads of legal services in local government asked about job security these days will likely respond with a hollow laugh. This year's further local government budget cuts in England represent a cumulative cut of 25-30 per cent over the period 2010-15: a total reduction of some £20bn. Obvious savings have already been made. It's now about survival. Factors other than cost are creating pressure for change in local authority legal services - the regulatory environment and liberalisation of legal services, new technologies, and different career paths. We may be on the brink of a transformational change of culture which reshapes future service delivery in the wider public sector.

Business efficiency

Long before the 2004 Gershon Review, the first route to business efficiency, through cost saving, was already well-trodden. The bulk of legal service spend is on staff salaries and other employment costs. Shared-service solutions which change the staffing hierarchy, reducing the number of higher grade posts, where teams from two or more authorities combine and share specialist posts, can offer attractive savings. Notable pioneering successes are Local Government Shared Services in Cambridgeshire / Northamptonshire, set up in 2010, and South London Law Partnership operating across Richmond, Merton, Kingston and Sutton.

In contrast, income generation offers a second route to business efficiency. If successful, the host authority retains a larger legal team with any surplus being ploughed into service improvement or benefiting the host authority's community. This requires the willingness and ability to sell legal services outside the host authority - to take on trading and compliance risks associated with conduct of a legal practice for gain. Here, Kent Legal Services led the way. It now boasts a clientele of more than 600 public and quasi-public bodies, ranging from schools to parish councils and fire authorities. (Kent went one better taking the opportunity to partner with the private sector in its Law:Public collaboration with my firm, Geldards).

Key issues for the business case

Any head of legal services facing an options' appraisal of either significant downsizing of the in-house legal team or looking at income generation will wish to explore the feasibility of the latter. The business case must be thought through.

First, what market would the venture serve? Two factors in assessing the size and nature of the target market outside the authority will be whether legal services are to be sold to other public authorities, and/or can they be sold to the private and voluntary sectors. The venture must be commercially viable and capable of withstanding external competition.

Next is the realistic assessment of the team's skillset, resources, and management capability. If the existing internal service is not meeting client needs or expectations, how can it expect to win business elsewhere? Critical to generating income is service pricing and the marketing strategy. The market is competitive and changes constantly: SWOT analysis is required. Competition may now come from the private sector and rival public sector ventures. How significant is early-mover advantage really? How will local private sector firms, who fear unfair competition from possible hidden operational subsidies, react?

Choice of model

The choice of model for the venture is key. Factors will include: political preference and appetite within the authority, the need for a trading entity, what powers should the venture have and how will it be made accountable. Ultimately the choice must be sensitive to all stakeholders' views and recognise any employment implications. Will this mean a TUPE transfer? If so, will the authority retain full ownership or will this be an autonomous spin-out where staff may be incentivised by being able to become part-owners of the legal services venture? The venture's status for public procurement purposes must be established, with consideration of the applicability of the Teckal exemption and state aid issues. These factors can only be weighed up with a clear understanding the pros and cons of the available models (see box out).

New becomes norm

Heads of legal will need to work within budgets, focusing the output of their teams on areas of highest risk, and where the need for bespoke legal input is greatest. More streamlined processing taking greater advantage of the semi-automation offered by advanced document assembly systems and smart workflows must be exploited. New local government legal service delivery models will become more common. Multiple solutions will emerge tailored to local circumstances and individual authorities' preferences. All this has important implications for public services and private practice alike.

 

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.

 

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Mark Johnson is head of public services at Geldards

www.geldards.co.uk

 

 

 

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