A pioneering shared legal service providing advice to seven councils in the East Midlands is set to create the latest local authority alternative business structure (ABS).
The move is more to protect what Legal Services Lincolnshire (LSL) has already built than to pick up external clients, as other local authorities have sought to do.
LSL was an early adopter of the shared service model back in 2008 and won awards for its success.
It is hosted by Lincolnshire County Council (LCC) and works also with Boston Borough Council, East Lindsey District Council, North Kesteven District Council, South Holland District Council and West Lindsey District Council.
LCC’s overview and scrutiny management board meets today to consider a recommendation that it approve creation of the ABS.
LSL has been operating on a trading basis since 2010 and has a turnover of £4.4m. Its staff – including around 60 fee-earners – are employed by LCC.
Almost all of its work is currently for the partner councils, although it generates around £150,000 in fees from external public bodies. Any surplus achieved by LCC is distributed back to the partner councils.
A paper for the board prepared by David Coleman, LCC’s chief legal officer, said: “As partner councils explore different ways of delivering services, especially through companies, LSL must have regard to the regulatory framework governing it and its solicitors.
“Guidance issued by the Solicitors Regulation Authority concerning when an in-house team may be required to be licensed as an entity suggests there may be limits to LSL’s ability to continue providing services to our partners when they act through other entities such as companies.
“LSL has identified that the creation of an ABS would overcome these regulatory concerns and allow LSL to follow its partners work regardless of how they choose to deliver it and to pursue other external work as it arises within a robust regulatory framework.”
He said the partner councils supported the move, adding: “An ABS would allow LSL to provide its services to a wider range of clients which may enable it to increase the income it achieves to support the budget positions of the partner councils.”
The board has been given five options for structuring the legal function, with the executive recommending that an ABS should sit alongside the in-house trading unit to act for non-partner clients.
The paper said: “Staff would be made available to the ABS where necessary to work for clients who can only be provided with services through the ABS.
“This would provide a solution to the regulatory risks of acting for other partner-created entities and enable LSL to manage the wider regulatory risks around existing partners pursuing their activities through new structures and ways of working.
“This would secure existing income and potentially enable the attraction of additional income from partners. The solution is also scalable, forming a basis on which the council could pursue wider trading activity where appropriate.”
Mr Coleman said the priority was to secure in-house capacity for the existing partners “rather than to pursue external income for its own sake”, saying that “the attraction of external income is welcome insofar as it is consistent with the sustainability of the service”.
He said this was preferable to placing all legal services within an ABS, as there were concerns about the capacity of the existing service “to accommodate additional external work and about its ability to attract the additional capacity that would be needed to enable trading on any scale”.
He added: “While a trading ABS might be able to offer higher pay, such additional costs will either have to be passed on to the partners in higher rates or covered by new external work.
“There is no evidence of a widespread market from which those additional costs could be covered by new work.”
Further, a full trading model would require the most resource and be most disruptive.
Mr Coleman wrote that the principal financial issue for the ABS was likely to be cash flow caused by any issues with recovery of fees from its clients. “This may be alleviated by the provision of a loan facility at commercial rates.”