Kent’s ABS initiative: brave but risky
6 December 2010 | By Luke McLeod-Roberts
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News that Kent County Council (KCC) is laying out plans to spin off its legal function into an alternative business structure (ABS) flies in the face of the image of the public sector as follower rather than leader.
Co-operative Legal Services has made frequent public declarations that it wants to take advantage of the opportunities presented by the Legal Services Act (LSA), but this is the first example of a legal entity outside the consumer sphere laying out concrete plans to go down this route.
However, long-term observers of KCC’s ventures into new areas will not be surprised that, yet again, it is leading the pack.
“I think it’s a bold and innovative move and just what you’d expect from Kent,” comments Quentin Baker, head of legal at the recently merged legal departments of Cambridgeshire and Northamptonshire County Councils.
Bold and innovative they may be, but are the plans sensible?
On 13 October KCC’s management released proposals for a radical overhaul of the local authority’s 96-strong legal function. Two scenarios were floated. In the first the legal department would be transferred to an arm’s length company. The local authority would retain overall control and a majority of the profits generated. The remainder would be split between employees and future investment in the business.
Under the alternative scheme the function would continue within Kent, but a limited company would be created that would allow the authority to target a private sector client base.
KCC already trades externally, both under its own brand (which has resulted in work from local authorities such as Surrey and Sussex) and in conjunction with private practice firm Geldards under the Law:Public brand. Law: Public targets struggling local authority legal departments and aims to take over their functions.
Law:Public has already been contracted by South Derbyshire District Council, although other authorities in the Midlands have sent work its way according to KCC director of law and governance Geoff Wild. This work not only creates a varied pool of activity for the KCC lawyers, but also generates further income for the public purse. In 2008 it made £1.42m.
However, it is arguably a big leap from the type of work typical of a local authority legal department, such as adult and child social care, compliance and housing matters, to being able to compete on a level playing field with private practice for private sector work.
“You’d have to be confident about your wider private sector knowledge to carry this off,” stresses Baker.
Cambridgeshire has also moved beyond its traditional remit of advising the local authority and currently advises the local Primary Care Trust and fire service. Baker estimates that this kind of external trading activity will generate around £30,000 in the 2011-12 financial year for his employer’s coffers. This may be barely equal to a City firm trainee’s salary, but then Cambridgeshire will not be charging its clients City rates.
“Our focus is on public sector - we know it well,” says Baker. “We think it’s a question of focusing on what we do best. My concern is that if you broaden it out you risk diluting the quality.”
According to Nabarro projects partner and public sector expert Steven Matthew, cost will be a major factor for KCC if it decides to go down the ABS route.
“The cost of premises, of support functions, of insurance and pensions – it’s not a cost-neutral option,” he says. “As for fees, they’re going to have to start charging and they’ll have to cover the cost plus a margin, and it’s a challenging environment out there.
“If another more lucrative piece of legal work comes along, the legal function will have to decide whether to prioritise that or to do work for the local authority. It’s a good thing local authorities have become more commercially minded, but the bottom line is that Kent has to ensure it has its legal needs met.”
The revelations about Kent have been followed by the news that Berwin Leighton Paisner (BLP) is considering spinning off its highly successful contract attorney service Lawyers on Demand.
The business line, which was set up in 2007, made £2m last year through selling lawyers’ time to clients, including corporations such as Colt Telecom. At the same time it has helped the firm forge closer relationships with these organisations. In fact, it was partly as a result of this contact that Colt agreed to sign up to BLP’s Managed Legal Services offering, signing over all its employment work to the private practice firm.
Again, it is little surprise that the most concrete plans in private practice to embrace the potential of the LSA should come from BLP, one of the City’s more entrepreneurial outfits.
Nevertheless, while there are similarities in the two cases, there are also qualitative differences between what BLP is proposing and the plans drawn up by KCC.
While BLP has surveyed the market and responded to clients’ needs in the way legal services are provided, the firm is not actually straying into new territory.
In contrast, KCC is seeking to compete in a market where it has no experience and which is already saturated. And it is a brave new world out there.