Local government: problem shared

The in-tray of a local government legal team covers the very fabric of people’s lives. Get it wrong and you can find yourself in the eye of a media storm, but get it right and you can help make a real difference.

Faced with huge cuts, local authorities are reviewing their options – from the London Borough of Barnet slimming down to an essential corporate body and outsourcing its functions at one end of the spectrum, to Islington at the other, bringing education, refuse services and housing back in-house.

Every decision – whether it is to close, reduce, reorganise, outsource, mutualise or privatise a service or function – has legal implications, both externally for the authority’s ‘customers’ and internally for staff.

This makes it both the best of times and the worst of times to be a local government lawyer.

There are innovative projects across the country with legal departments teaming up to share services. Others have become players in the wider market, pitching for places on local authority framework agreements, going head to head with private practice for work and ploughing profits back into their authority.

As the Gazette went to press, Harrow and Barnet Public Law (HBPL), a joint venture launched last year by the two boroughs, was waiting to hear if the Solicitors Regulation Authority will license it as the first local authority alternative business structure (ABS).

But there have also been numerous redundancies in the sector, while the pressure of trying to meet increasing demand as budgets are sliced and headcounts slashed has seen staff off sick with stress.

With around 4,500 solicitors working in local government, those in charge of legal departments are determined to boost their profile. Lawyers in Local Government (LLG), combining Solicitors in Local Government and the Association of Council Secretaries and Solicitors, launched last March with ambitions to become the legal equivalent of the Chartered Institute of Public Finance and Accountancy.

However, while an entrepreneurial spirit is blossoming, even in councils seen as the ‘bad boys’ during the 1980s, the rules governing employed solicitors are looking increasingly out of step.

LLG is pressing for changes, warning that in-house legal teams will struggle to remain viable if they cannot support council services outsourced to private companies. The Law Society also backs increased opportunities for in-house lawyers, as long as the same regulatory requirements are applied to all competitors in the market.

The SRA has promised to review how rule 4 of the Practice Framework Rules applies to local government lawyers as part of its study of the in-house sector. The regulator says it has shown it is serious about making changes that benefit the sector by removing the ban on charging for services to third parties in the first round of its Red Tape Initiative. But the SRA adds that it is not in a position ‘just yet’ to discuss further changes.

Mark Hynes, director of governance, assurance and democracy at Lambeth Council, is LLG’s inaugural president. He points out that local authorities are facing unprecedented cuts; his own council has to cut revenue spend by 40% over the next three years, equating to £96m.

‘It may sound alarmist but the challenge for local government lawyers is to make sure they have a viable future,’ he says. ‘Until now, the suite of services being outsourced to deliver efficiencies has not included legal. But, interestingly, Capita has applied for an ABS licence. It doesn’t take a huge stretch of imagination to see them wanting to offer outsourced legal services.’

Rule 4 certainly needs a major overhaul, agrees Bethan Evans, senior partner of Bevan Brittan, which has a national local government team. ‘We are in a completely different world now,’ she says. ‘The SRA should stand back, look at the restrictions and get shot of them all, apart from the rule that they cannot provide services to the general public.

‘We are dealing with things that wouldn’t even have been on the agenda two years ago, such as social investment bonds involving third-party finance, and local authorities are having to skill themselves up to deal with this.’

With some legal departments operating effectively as in-house private practices (Kent County Council Legal Services has 125 lawyers, £12m turnover and made its highest profit of £2.4m in 2012/13) it is unsurprising some are actively looking at becoming ABSs.

But it is not straightforward, depending on the ambitions of the legal team.

Hynes is looking at this as an option for Lambeth. ‘It is a potential minefield and we want LLG to play a key role in helping heads of legal learn from each other,’ he says. ‘What lawyers can’t do is put their heads in the sand.’

What will be critical is how the ABS is structured. Judith Barnes, who heads DAC Beachcroft’s local government team, says that a local authority ABS could operate as a Teckal company if it is controlled as an extension of the council with no private sector involvement and does the greater part of its activities for the council.

The judgment in Teckal Srl v Comune de Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia C-107/98 [1999] ECR I-8121 established the rule that where a public body enters into a service contract with a body over which it exercises decisive control and which provides the essential part of its services back to the parent body, this contract is not subject to the procurement rules.

‘If you meet those two limbs, the council can give it work without going out to tender,’ she explains. ‘You can have more than one public body as the parent. But it won’t be able to trade widely with the private sector; in the past, this has been interpreted as about 10% of its work.’

A new EU directive, likely to be approved early this year and come into domestic legislation within two years, will codify the Teckal exemption. The control test remains but it will increase the scope to trade more widely to just below 20%.

‘This is the only way to avoid procurement rules in relation to giving your baby your own work,’ she says. ‘If you set it up as a standalone entity purely as a trading company it will have to compete for the work from day one.’  

Another option, Barnes says, would be to join an existing ABS so that all the systems a new entity needs (client account systems, conflict procedures, risk and reporting officers) are already in place.

Councils will need to think through the new relationships and how they will interact with a new body, she says, particularly how it is managed and monitored, and what access it may be given to council systems. There will be potential data protection and security issues as councils deal with a lot of third-party information.

It is unsustainable to run legal services the way they were five years ago. We need to wake up to that and embrace it as an opportunity to develop the  profession rather than as a threat – Mark Hynes, Lambeth Council

Hugh Peart is director of legal and governance services department at Harrow Council, which hosts HBPL’s team of 80 lawyers. He explains his reasoning for becoming an ABS: ‘The planning team in Barnet is employed by Capita, while Harrow’s libraries are managed by John Laing. We want to follow that work, not make a foray into the private sector.

‘Is it a potential minefield? Yes, and I can understand why some think if the work goes, it goes. This is blooming hard work. But I want HBPL to be sustainable.’

HBPL is also teaming up with Bevan Brittan to make a joint offering to the market based on HBPL’s lower cost base and in-house expertise, and Bevan Brittan’s private sector nous, business skills and range of specialisms.

The final details are still to be worked out, but Peart says: ‘I think our partnership idea is formidable. It might bomb but there is enough there to give it a damn good try.’

A similar partnership has been running between Kent Legal Services and Geldards since 2010. Law:Public offers personalised legal advice at an average headline rate of £150 per hour.

Geoff Wild is Kent’s director of governance and law. The council used to spend £5m on external legal support, with half its legal work outsourced. Wild, who took over in 2006, brought most of the work back in-house and his team now works nationally with 330 public bodies.

Currently 20% of its work is external, but Wild has set a target of 40%. ‘We are working to reduce the amount we do for Kent by encouraging departments to do more themselves to reduce our cost burden on the council,’ he explains. ‘We can then focus our energy on building up our external client base, so we can maximise the income we generate, with any profit going straight back into the central budget.’

At Essex County Council, legal services director Philip Thomson heads a team of about 120 fee-earners plus 30 support staff generating turnover of about £10m. For the last two years it has operated as a trading unit with a zero budget.

‘We have to make the money we survive on and we have fairly stretching targets to pay what may be regarded as “profits” to the council,’ he says. ‘Our external work is now worth around £3m turnover, about a third of which is profit.’

Most of its activity in the shared service field revolves around the Public Law Partnership, a grouping of some 28 local authorities that share work and support each other.

In Wales the cuts are only now starting to be felt, but local authority legal teams are advanced in terms of collaborative working, with three regional groupings (east, west and north). Bridgend County Borough Council is one of six authorities which make up the western region of the country, with a project manager funded by the Welsh government. It jointly funds a commercial team based in Swansea.

Andrew Jolley, chair of LLG in Wales, is Bridgend’s director of legal and democratic services, which has a team of 24 lawyers. He says local government is being reorganised so it is too soon to consider whether ABSs will be an option. However, he adds that, while the collaborative projects are more to do with support than income generation, they have already made significant savings.

So what impact are these changes having on relationships with private practice?

Wild says Law:Public is about trying to overlay public sector ethos with a private sector mentality to get the best of both worlds. While he wants law firms to see Law:Public as competition, he stresses: ‘we don’t need to be at each other’s throats’.

Local authorities are attractive to clients who pay promptly and are unlikely to go bust. But this is an age of austerity. Competition means the rates in framework agreements have fallen by 20%-40% over the last 10 years, while the range of added value they want firms to bring to the table has grown.

‘Councils want full strategic advice with the capacity to pick up the phone without the taxi meter starting straight away,’ says Nicholas Dobson, a consultant with Freeth Cartwright and regular Gazette contributor. ‘We also do a lot of training which has benefits both ways, as we get up close and personal to key people in both existing and target clients.’

Barnes says DAC Beachcroft offers the ‘Martini’ helpline – any time, any place, anywhere – with initial consultation free. Other requests including helping to maintain websites, organising training programmes and a portal for booking courses. Lambeth is the most dynamic, she adds, asking firms to provide work experience for looked-after young people in the borough.

With so much going on, there is a busy locum market to cope with spikes in work. But a key challenge is incentivising permanent staff when public sector pay has been frozen or restricted to 1%. In one interview, Wild colourfully contrasted private practice ‘eat what you kill’ incentives with the need to motivate in-house lawyers who, ‘fed twice a day’, can turn into ‘zoo animals’.

He says Kent has benefited from a huge influx of ex-private sector lawyers since the downturn. Salaries for unqualified staff, trainees and newly qualifieds are on a par with regional counterparts in south-east practices. While larger firms can pay higher salaries for more senior lawyers, he says Kent competes by offering very good working conditions, plus exposure to a wide range of high-quality work much sooner than in a law firm, and a career grade promotion scheme. Kent is hoping to take on four trainees as part of a concerted campaign to ‘grow their own’ lawyers.

In Essex, salaries for junior lawyers start at around £37,000 and go into six figures for the most senior. All pay is performance-related. ‘We can’t do profit share at the moment,’ says Thomson, ‘but it is in our sights.’

Islington has a team of 30 solicitors. Assistant director of law Peter Fehler says that, while it cannot offer the salaries of private practice – ‘my sister is a partner in a West End firm and I don’t think I could pay her salary’ – instead it offers a very healthy work-life balance with lawyers able to work from home at least one day a week.

With so many challenges ahead, it is not surprising that heads of legal want to raise their profile.

The Law Society recently created an in-house division, including both commerce and industry, and local government, to provide key news, regulatory advice and features (for more information, see the website). While the LLG works with the Society, it chose not to be part of the new division.

LLG president Hynes notes: ‘If you contrast our role with the fortunes of accountants in local government they have been much more successful in securing places at the top table, while CIPFA has grown into a multi-million-pound organisation. Why shouldn’t we be equally valued?’ His vision includes more training, postgraduate qualifications at discounted rates for members and correspondence courses which could open up an overseas market.

‘We are also looking at developing a recruitment company, given our database of lawyers,’ he says. ‘Authorities pay private agencies commissions for locums. Why can’t we move into that space as the first port of call for both locums and permanent staff? We could also offer a consultancy service.’

The opportunities are immense. Public health is being transferred to local authorities. Add in the green agenda and drive to greater localism and in-house legal services will need to adapt and ‘skill up’.

What is clear is that the days of the local government lawyer being out of sight in the back office are going. ‘The ability to step into the spotlight and promote or defend your authority in the media is increasingly important,’ Wild says, ‘while having finely tuned political antennae are on a par with legal skills.’  

Hynes agrees that these are unprecedented times: ‘They are being driven by the cuts – let’s not kid ourselves. But it is unsustainable to run legal services the way they were five years ago. We need to wake up to that and embrace it as an opportunity to develop the profession rather than as a threat.’

Grania Langdon-Down is a freelance journalist