Government puts ABSs to the fore as legal aid reform forces market consolidation

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10 April 2013

Grayling: necessary to drive greater efficiency

The role of alternative business structures (ABSs) in helping law firms and others bid for new legal aid ‘super-contracts’ in criminal work was highlighted by the government yesterday as part of radical plans to slash the number of providers by three-quarters.

It is the culmination of policy development at the Ministry of Justice that four years ago first made the link between ABSs and the future of legal aid provision.

The proposed reforms – which aim to cut £220m from the legal aid budget – include the revival of price competitive tendering (PCT) for criminal work.

The Lord Chancellor, Chris Grayling, said: “To deliver real savings, it is necessary to drive greater efficiency in the legal aid system too. For criminal litigation, we are proposing a model of competitive tendering, where solicitors’ firms must compete to offer the best price they can for work in their local area.

“This will mean successful firms expanding or joining together, to achieve economies of scale which can be passed onto the taxpayer in savings to the public purse.”

The Ministry of Justice’s model would see the current 1,600 contract holders in England and Wales reduced to just 400 handling bigger caseloads across 42 procurement areas.

“This would mean current providers would need to grow their business on average by around 250% (or join with other providers to create sufficient resource to deliver the expected caseload),” the consultation said.

It continued: “To achieve this, existing providers would need to consider new forms of business structures, such as forming ABSs or joint ventures with other organisations, to achieve the capacity that would be required to tender for and operate the new contracts successfully. There may also be other providers that have experience of managing contracts of this size, from outside the existing market, interested in applying for a contract.”

The impact assessment accompanying the consultation argued that the positive of consolidation would be to make it “easier to access greater volumes of work and allowing control of the case from end to end”.

It said: “By gaining longer and larger contracts with greater certainty of volumes, successful applicants would have increased opportunities to scale up to achieve economies of scale and scope and provide a more efficient service.

“Our proposed model would give firms the confidence to invest in the restructuring required in the knowledge they would be in receipt of larger and more certain returns over a longer period of time. Whilst encouraging consolidation, the model allows providers the freedom to develop the most efficient approach in delivering the service (e.g. the extent to which they sub-contract).”

The assessment argued that those providers that do not win contracts may still have a future as agents in the relevant procurement area. “Giving providers the opportunity to be more flexible in the way they structure their business and in doing so deliver the service, whether that is through joint ventures, use of agents or ABS is also essential if a more efficient and cost effective criminal legal aid system is to be established.”

The role of ABSs in legal aid work was foreshadowed in March 2009 by the then Labour Lord Chancellor, Jack Straw, in a major speech on the future of legal aid. He said: “For law firms to survive they will have to look to how they are structured and how they operate. The introduction of the Legal Services Act has meant that new opportunities are there for firms who are able to adapt to the changing demands of the new legal market-place.

“Currently, 80% of all legal aid is carried out by firms with fewer than four partners, and nearly a third is undertaken by sole practitioners. But no firm, large or small, will be able to stand still in the face of the innovation which new business models will be able to bring.”

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