LSB chief urges local government lawyers to take advantage of Alternative Business Structures

Local authority lawyers should seize the opportunities presented by the introduction of Alternative Business Structures in 2011, the chief executive of the Legal Services Board has said.

Speaking at a Bevan Brittan seminar on legal services regulation last week, Chris Kenny said local authorities needed to consider the impact of the changes being brought in under the Legal Services Act. In particular, he advised, they should analyse their role as commissioners, providers and employers.

On commissioning, he asked: “If you are dealing in a much more variegated commercial provider landscape, if you have got people out there offering to do commoditised work in a different way, how are you going to respond to it? What are the things that you currently do in-house that you might want to outsource?

“And what are the things that you currently outsource that you might want to do in-house or you might want to share with a local authority 40 miles down the road?”

Kenny suggested that local authority legal teams needed to assess whether they have the commissioning skills to deal with this new environment. Citing his experience at the NHS, he warned that there was a danger of building a service provider before the commissioning organisations were ready.

The LSB chief executive added that local government lawyers should look at how they can bolster their own offering as providers. “Do you want to follow the Kent model? Would the arrangements be informal, would it be some kind of consortium, would you go into the joint venture world, or would you even establish an ABS? How would your chief executives respond to that?”

A third consideration should be the effect of the new regime on local government legal teams as employers, and their recruitment and training practices. “Do people see themselves on the slow ladder to becoming the borough solicitor or head of legal or do they see themselves as jumping in and out of the public sector?” Kenny asked, arguing that it was essential to look at the skill set departments would require going forwards.

Kenny concluded: “There are a whole range of issues, many of which are swirling around already, but all of which the advent of alternative business structures will make sharper and more pointed than before.”

Calling on local authority lawyers to make the most of the new regime, he said: “This is a world where the glass is definitely half full for those who spot it and are able to respond.”

Iain Miller, partner and a professional regulation specialist at Bevan Brittan, highlighted the practical impact of the changes under the ABS regime, including the move towards licensing entities, rather than individuals. The regulation of all lawyers will become entity or firm-based, he added.

Miller said: “The obvious consequence is that in-house teams will be able to provide legal services to someone other than their employers if they are licensed to do so. The clear distinction between private practice and in-house practice may no longer exist. It would be perfectly possible for an in-house team in the public sector or the private sector to say they would like to be an ABS.”

The principal possibilities under the new regime include providing shared legal services through a separate corporate entity (as the current restriction on this will disappear), setting up a joint venture with a firm of solicitors in private practice or the provision of legal services by outsourcing organisations. “There’s no reason why Capita, for example, can’t say ‘we will have a legal services arm and we will bid for contracts to provide legal services to a local authority or indeed any other organisation’," Miller said.

Bethan Evans, a partner in the Communities and Local Government group at Bevan Brittan, acknowledged that there are intense financial pressures on local authorities and legal services “are not immune to that”.

She added: “Local authorities as customers will need – more than ever before – high quality legal advice if they are to deliver the agendas that they are trying to deal with.”

Evans pointed to the momentum towards shared services that can provide economies of scale, both in supply and commissioning. “In these straitened times, there will also be a push to maximise external income from whatever source it can be obtained, and legal services may be part of that. Will the new ownership and control rules for legal services offer new opportunities?”

Delegates at the seminar said the possibility of setting up an ABS was attractive but expressed concerns at the burden of entity-based regulation, the need for separate professional indemnity cover and the potential impact of the successor practice rules if the ABS venture is deemed not to have been a success.

“The preferable route may be to go down the shared services idea, particularly with transactional activity, and keep in-house somebody who is going to be your monitoring officer and deal with your corporate support,” said one attendee.

However, there was confidence in the ability of local government lawyers to survive the changed environment, and the possible arrival of outsourcing organisations.

“In-house legal teams in local government have always been faced with work going out,” one participant said. “We’ve had compulsory competitive tendering. We’ve now got various structures such as shared services. We should be looking at ABSs as a tool…. and how we can use it to our own advantage.”