Alternative business structures (ABSs) set up by local authorities should improve access to justice without threatening private practice law firms, according to the lawyers who advised on the first two council licences.
Both were advised by national firm Bevan Brittan, and partners Iain Miller and Peter Steel told Legal Futures that a law firm owned by a local authority and operating at the junction of the public and private sectors arguably represents the most radical use of ABS status to date.
Although such ABSs are able to offer niche expertise in a number of areas at a cost that is likely to be much lower than the rest of the market, Mr Miller said that issues of competition law/state aid and the “practical difficulties of handling significant volumes of ‘external’ work” would suggest that direct competition with private practice firms is unlikely.
He said: “The target client base for the local authority ABSs is probably quite narrowly defined. Firstly, where the host local authority has outsourced core services – for instance, planning work or management of housing stock – to the private sector, local authority legal teams were previously left with a sort of existential dilemma.”
Without an ABS licence, he explained, local government lawyers would not be able to carry on working for what were their internal clients but are now operating under the guise of a private sector supplier. Now, not only can they do that but they can also generate “much-needed revenue for their sponsoring local authority”.
Mr Miller added: “Even if this leads to competition with other legal suppliers via tenders, with their specialist knowledge of their client base and its work, local authority ABSs may be quite bullish about retaining such clients over the longer term.”
The second target client base is the wide range of public and quasi-public sector bodies – such as parish councils, voluntary groups and not-for-profit agencies – that councils now work with. Many may have a need for legal services, say to negotiate a lease, but are inhibited from instructing solicitors due to the cost of doing so.
Under the current rules, provided such bodies are on the council’s ‘patch’, are not “the public, or a section of the public” and/or the services provided are not reserved legal activities, the local authority legal team might well be able to act for them under the existing rules.
But stray outside the boundaries, Mr Steel said, and the regulatory risk increases. “ABS status solves this problem and arguably opens up a potential market for the sort of services in which local government lawyers are experts.”
Mr Steel said private practice has not traditionally shown much interest in either of these sources of work, “which suggests to us that local authority ABSs are not likely to be operating in competition with anyone, least of all private practice solicitors.
“The Legal Services Act 2007 has as one of its principles improving access to justice – the advent of local authority ABSs may be an excellent example of how innovative use of the structures available under the Act can be directed to that end.”
Mr Miller said the flexibility offered by ABS may also assist local authorities in procuring and managing external legal services – one of the stated aims of London Borough of Lambeth in exploring the possibility of an ABS is to cut its external legal spend.
“Such developments are starting to illustrate that the possibilities afforded by the Legal Services Act 2007 are not confined to the commercial arena, but may also play a role in facilitating the provision of legal services to the public sector,” he added.