A problem shared…

Survey analysis: Derek Bedlow finds a sector struggling to combine a growing workload with shrinking resources. Are shared services the answer?

This is the fourth time that we have run a legal department management survey (this time in association with Kennedy Cater, the firm of specialist legal consultants) and on each occasion the enthusiasm for, or resignation towards, shared services has grown.

More than half of the 65 legal departments that took part in the survey were either already part of or considering joining a shared legal services operation. Looking at the findings of this poll, conducted over the latter half of last year, it is not difficult to see why. Legal departments are facing a double whammy of declining resources and growing workloads and many are struggling to cope.

Sixty per cent expected their budgets to be cut, yet 80% expected their workloads to increase, 37% ‘significantly’ so. In part, the growth in legal work is being driven by new legislation, not least the Localism Act, the effect of and challenges to service cutbacks, the growth of outsourcing and other alternative methods of service delivery and the ongoing growth in procurement challenges, child protection work and Freedom of Information disputes.

The result is that those disciplines most likely to experience growth in the next 12 months are procurement law, employment law, governance and standards, and planning. In the opposite direction, the end of the ASBO and the dearth of project work mean that anti-social behaviour work, projects and transport/highways are the areas most likely to see a drop-off in demand.

More generally, the increase in demand is coming from client departments that are also finding the post-credit crunch world difficult to cope with. “Cutbacks and restructures in other parts of the local authority reducing the experience and knowledge in many departments, making them more dependent on the legal department,” noted one respondent amid many other similar comments.

Unsurprisingly, when asked to name their three biggest management challenges, cost control came a clear top – being mentioned by 82% of respondents and cited as the single biggest problem by 47% of respondents. “Managing increasing instructions against a backdrop of cuts is my biggest challenge,” one respondent said. Only corporate governance and constitutional issues came close, being included in the top three challenges by 57% of respondents.

Squaring the circle

So how are legal departments attempting to make the numbers add up? In more usual circumstances, private practice might be expected to fill the gap between demand and supply, but instead, the survey would suggest that legal teams are more likely to cut their external legal spend than internal headcount.

While, as we have already seen, 60% of council legal teams are facing an overall budget cut, only 29% said that they expected the size of their departments to shrink, and 15% actually expected their numbers to grow. Instead, 55% said that their external legal budgets would fall, against 9% who expected them to rise.

This ongoing reduction in external legal spend is happening despite the apparent success of the various panels set up over the past few years in reducing legal fees. Sixty-two per cent of respondents with access to a solicitors’ panel (69% of the total) said that it had reduced the cost of legal advice, with more than a quarter (26%) saying that the reduction had been in excess of 20%.

And although barristers’ panels (37% of respondents have access to one) are, in most cases, a more recent development, 46% said that they had reduced the cost of counsel. Consequently, a majority of respondents actually considered external legal fees for routine work to be either ‘about right’ (or even ‘good value’) while half said the same of the higher rates they pay for specialist or transaction advice.

In part, this anticipated drop off in the use of external lawyers – especially solicitors – is a consequence of the ongoing dearth of major projects work following spending cuts. More generally, however, whether good value or not, using private practice is still perceived as being significantly more expensive than keeping work in-house. And increasing numbers of legal departments see some form of shared services arrangement as being the key way to keep more legal work in-house. “We are looking to reduce external spend by collaborating between councils,” said one head of legal.

Sharing the pain

Almost a third (31%) of the legal departments that took part in the survey were already part of some form of shared legal service and close to the same number again (28%) were considering forming or joining one. Fewer than half of departments surveyed – 41% – have ruled it out for now.

The main drivers for those in or thinking about shared services were to improve resilience (cited by 74%), financial pressure (66%) and to improve efficiency and productivity (51%). A significant minority – 32% – saw shared services as a springboard for developing a traded services operation while almost a quarter saw it as improving their recruitment and retention records.

Yet despite these perceived benefits, a fair degree of scepticism and doubt remained, both within legal teams and among the members and officers they serve.

The biggest single objection to shared services, identified by 79% of the respondents to the survey, was the gap that operating as a shared team can create between the lawyers and the members and officers. Legal teams’ relative lack of involvement in the decision-making process of many authorities has long been a source of regret for local authority lawyers – and a problem that the development of shared services is perceived as exacerbating.

Many also remain unconvinced of the financial benefits, at least in the short term, compared with the cost and disruption involved. Fifty-nine per cent said that this would cancel out any savings made by pooling resources in the foreseeable future, while 38% also cited the negative effect on staff morale and the loss of experienced staff that moving to a shared services model can cause.

This question attracted a large number of additional comments from respondents and a representative sample is given below:
“I need to be convinced on rational grounds that it works rather than just being a ‘mantra.’”
“[It]stretches our expertise too thinly, while other councils bring a debit and not a credit to the table.”
“Agreeing the vision for the shared service so that it meets the needs of the relevant authorities [has been a barrier].”
“Barriers have been local politics and the concerns of smaller authorities about being taken over.”
“There is a lack of accessibility if the legal service is not physically proximate to clients – they like to ‘pop in’.”
“Putting together several under-resourced teams will probably not result in a better service!”

There is also a degree of inertia about shared services at some authorities. Of those that were not in or considering shared services, 70% said that they did not see the need, while political and officer pressure to keep the team in-house was also an important factor, with 59% citing it as a reason not to jump on the bandwagon.

Many authorities, it seems, would not enter into a shared services arrangement by choice. How many will have a choice in future if the present financial environment persists is another matter entirely.

Derek Bedlow is the publisher of Local Government Lawyer.