A momentous birthday

It is 60 years since the Legal Aid and Advice Act 1949. Much has changed in society in that time '“ not least that the Legal Services Commission has its own twitter page. And it is unarguable that the legal aid scheme has been used to fund cases which have contributed to society being a more just and fairer place '“ that is something everybody involved in the scheme can be justifiably proud of '“ but what of the future now that the birthday party is over?

The Legal Services Commission's own objectives are to 'work with clients to ensure services are delivered in the most suitable way' and that, self evidently, does not mean in the same way they always have been.

We now have the Legal Services Act 2007 after an evolutionary process which started in 2001 with the OFT report 'Competition in the Professions', but which heralds a revolution in the way in which law firms can be owned and legal services delivered.

The regulatory objectives set out in the Act include 'improving access to justice' and 'protecting and promoting the interests of consumers', but they come at a price and as far as legal aid is concerned the price is paid by the taxpayer at a cost of around £2bn per year.

Ministers are very anxious to see a reduction in the cost but, beneath the stark statistics on legal aid spend, lies a complex myriad of individual client needs which include social, financial and medical problems, and these require co-ordinated multi-disciplinary solutions.

Is there anything in the Act which is at all relevant to legal aid firms? Or indeed to the Legal Services Commission itself? Or, as some fear, is this legislation designed primarily to pave the way for new entrants into the legal services marketplace, such as insurance companies and supermarkets, to the detriment of existing suppliers?

Relevant model

The Legal Disciplinary Practice model is something which has appealed (and which has relevance) to legal aid firms '“ you have only to look at the names of firms on the list of LDPs to see that a significant number of those who have applied for recognition do significant amounts of publicly funded work (see, for instance, Switalskis, Keoghs, Sills and Betteridge, and Meyer Wolff).

That said, the solicitors branch of the legal profession appears to have been somewhat underwhelmed by the advent of the LDP model (which has been available to them as an option since March of this year) but not as underwhelmed as the Bar, whose standards board has yet to make the rules to enable barristers to operate in LDPs, arguing for a slower more cautious approach. The Bar's main argument is that a more thorough assessment of the impact of changes in the market is needed before it will permit barristers to practise in partnership with others in new fangled business entities.

In fairness to the Bar, this approach resonates with Sir David Clementi's caution that legal businesses should be able to walk before they can run. Solicitors have at least taken their first steps, and the LDP is in any event an interim phase in the roll out of the Legal Services Act before the 'Big Bang' '“ when alternative business structures are permitted. David Edmonds, chair of the Legal Services Board, has made it abundantly clear he would like to see the first of these up and running by 2011.

A size issue

The rules, which apply to solicitors, allow firms to admit up to 25 per cent 'non-lawyer managers' (which has a specific definition within the Act and which has nothing at all to do with management) and/or other lawyers (but not yet barristers) in to equity ownership.

To date (October 2009) 108 out of about 10,000 firms have applied for LDP recognition, but it is perhaps worth pointing out that there is a size issue with the LDP model in that, by definition, a firm must be a certain size '“ i.e. have at least three lawyers '“ before it can even think about becoming an LDP. The purpose of the 25 per cent rule is to ensure a solicitor majority '“ safety in numbers! '“ so as to prevent the lawyers' independence being compromised by interests which may conflict with their duties to act in the client's best interests.

Unfortunately this laudable objective has had the effect of excluding perhaps half of the profession; that is, sole practitioners and those solicitors who operate in those very small two to three-partner high street firms who actually represent the majority of firms '“ and a good number of them provide publicly funded services for vulnerable clients in the communities they serve.

When the figures are looked at in that context, they don't seem bad at all. In fact, arguably, they are a clear indication that the profession, or at least part of it, is changing and starting to walk towards the brave new world of alternative business structures with increasing confidence.

Why would you do it?

Sadly, the SRA statistics don't give the human or the business story behind the decisions which firms have made nor, without actually telephoning the firms concerned and asking the question, is it possible to identify the types of people who have been invited to join the partnership table and why.

Steve Wilson, a solicitor and partner in Sills and Betteridge, confirmed that his firm had admitted their practice manager, who has an accountancy/management background, to equity ownership, having recognised that someone who looks at issues from a management perspective 'adds to the efficiency' and therefore the profitability of the practice because that person 'introduces a degree of independence and accountability' to decision making freed from the 'emotional and defensive' response often associated with challenging the performance of partners who head up different practice areas, especially those which are publicly funded, in a firm offering a mixed service range.

Wilson describes the introduction by the new practice director of a requirement that all fee earners should conduct an end of case review to account for 'unacceptable losses' on fixed fee and no win no fee cases as an uncomfortable, but welcome, management tool and as an example of a change in culture towards a much more business-orientated organisation.

Lawyers who do legal aid work are not used to being challenged in this way; they are used to ensuring that their files are capable of satisfying a peer reviewer, which is a wholly different and occasionally inconsistent discipline.

Another rationale for becoming an LDP was described by Tim Durkin, senior partner at Meyer Wolff, who said that his firm had been able to achieve something long overdue; namely the admission to partnership of a valued member of staff, a Fellow of the Institute of Legal Executives, whose contribution to the firm over time was such that he would have been a partner long ago had the rules allowed.

Neither of the firms identified the need for capital introduction as being a reason to form an LDP. Both have, in fact, promoted individuals who were already being employed by them into part ownership and neither saw this as a half way house to becoming an ABS.

What next?

This article is a sequel to one written about two years ago, in the period post-Carter, pre-roll out of the Legal Services Act, when legal aid firms were starting to think about their future survival strategy and when everything seemed possible.

There has been a lot of water under the bridge since then in the form of a debilitating recession but, also, because there has been such a long implementation phase following the Act itself making it on to the statute books, business plans formulated in those heady days have had to be put on the back burner. More worryingly, some of these plans have already been implemented by firms who have jumped the gun and now run the very real risk of enforcement action being taken against them by the SRA for being in breach of the existing regulatory framework.

The premise of the original article was that Community Legal Advice networks (CLANs) and Community Legal Advice centres (CLACs) were alternative business structures by any other name and that the co-ordinated funding and delivery of a range of legal and complementary services through one entity is one, if, not THE future for publicly funded legal services. In short, the vision of a properly funded and supported one-stop shop, inhabited by multi-talented people from different disciplines catering for complex client needs. We are not quite there yet because the multi-disciplinary model in this sense can only come with the ABS rules, which are anticipated in 2010/11 and the Legal Services Commission (together with other organisations e.g. the health service, local authorities and charities) will themselves need to recognise, embrace and encourage the possibilities that they will bring.

But, as ever, just when you think you have a grasp on what the future may actually look like, another review of legal aid has been announced, this time by legal aid minister Lord Bach, to be conducted by Sir Ian Magee.

Sir Ian's brief is to look at whether the legal aid fund is being 'appropriately spent' and although the terms of reference are not as yet entirely clear, it is a safe bet that there will not be an increase in the budget for publicly funded services and that there will, once again, be an imperative for suppliers to look at the way in which services are delivered so as to achieve efficiencies and value for tax payers money.

Aside of simply reverting to the 'what would you advise a fee-paying client of moderate means?' test, which in itself could save a fortune, Sir Ian will also, hopefully, be able to have regard to the opportunities presented by new business models permitted by the Legal Services Act, not simply by the procurement of bulk commodity services through large providers, but also to facilitate creative, local community, multi-disciplinary initiatives to meet complex client needs.

This is going to involve a different approach to the formulation of policy around publicly-funded legal services. Instead of trying to work out how far or how much further suppliers can be squeezed on costs before they give in, it will involve acknowledging that there is a better way of meeting clients' needs and working up a completely new business model to achieve that aim.

And finally?

There may be a size issue with the LDP model, but perversely there won't be the same barrier with ABSs and so, in the future, organisations delivering legal services, of whatever size, can be whatever they want to be and put together those combinations of funders/investors and services that will best meet clients' needs.

For now though, the LDP model has gained some fans in legal aid firms who have brought management expertise to the partnership table and who have also been able to recognise and reward existing talent by bringing to the partnership other types of lawyers.