BLP’s deal with Thames Water creates non-City platform

The deal that Berwin Leighton Paisner (BLP) has struck with its client Thames Water, which will see the utility transfer the majority of its legal function to the City firm (TheLawyer.com, 25 March), is a major coup for the firm. Relationship partner Patrick Somers expects it to bring in £5m a year. Not bad for a relationship that BLP only struck up a few years ago.

Thames Water is reportedly not an easy client to please. One City partner at a rival firm who has advised it in the past says: “Thames Water’s quite tough to deal with. [However,] they do a lot of work and it’s a good horse to be saddled to.”

Somers himself admits that Thames Water general counsel Joel Hanson “ran a tight ship to make sure he was getting value for money”.

But what has been behind BLP’s win? The City partner says of BLP: “They’re quite good because they look for the long term on clients. They don’t ­necessarily make a lot of money on shorter-term deals. They take a view that, overall, if they’re ­embedded with a client, it will come right.”

This is certainly the case with clients such as Tesco, for which BLP handles the lion’s share of real estate work. While the higher-end corporate work and competition work goes to Freshfields ­Bruckhaus Deringer, BLP has also bagged a number of smaller ­corporate deals.

Thinking beyond the ­chargeable hour is now more or less de rigueur in the City, but BLP has been ­offering clients a menu of fee arrangements, including fixed fees and outcome-orientated fee ­arrangements, for some time. The City partner, who comes across BLP on a regular basis, agrees that this is part of the firm’s secret. “I know BLP does some very good fee deals. In PPP they get paid on the ­completion of deals,” he points out.

Then there is the question of the firm’s expansionist agenda. Over the past financial year it has made 10 lateral hires into corporate, finance, litigation and tax, five of whom joined from magic circle firms. Somers argues that the added capability is one reason that the firm can claim to be able to claw work away from Thames Water’s other panel firms (it is believed to have taken securitisation work off Linklaters recently).

But one source close to the firm is less sure that the laterals have much to do with it - or that BLP should be so confident of retaining all the high-end work. “This is a corporate client,” he says. “Hires in finance and tax have nothing to do with it. They’re going to be doing mid-end, run-of-the-mill work. If there’s a hostile takeover would BLP be in the best position to defend the company?” It should be pointed out, however, that the firm is no stranger to strategic advice. It advised Thames Water’s board when previous owner RWE, advised by ­Slaughter and May, auctioned it off to Allen & Overy client ­Macquarie Bank in 2006.

Somers asserts that the Thames Water arrangement, which will see the utility’s legal team remain at the company’s Reading ­headquarters even after transferring to BLP, is a good alternative to ­conventional outsourcing. “With this model we’re able to say that BLP’s embedded in the business,” he says. “Other models such as LPO [legal process outsourcing] take you a certain way, but [they] don’t necessarily do what clients want, which is [achieving] ­complete alignment.”

BLP claims that through the arrangement Thames Water will have access to the firm’s wider knowledge management and legal expertise. This is obviously a
major step up from some LPO ­arrangements, which are much more process-driven, but are the drivers any different for the client?

“From a corporate point of view legal doesn’t provide any added value. This is no different from outsourcing from the Thames Water point of view,” says the source. “But to be fair to BLP, they’ve had the guts to do it.”

The terms of the deal are still to be ironed out and one sticking point will be remuneration. The 14 or so Thames Water lawyers who will begin to work for BLP will be on different packages from what they currently earn and from those of colleagues at BLP, although the firm declined to ­comment further for this article. Earnings will be protected on a Tupe basis and so it is expected that base salaries will increase to compensate for ­possible changes to pension schemes and other ­benefits.

“It could be a headache for BLP,” says a City pensions partner with knowledge of Thames Water. “One of the reasons people work in the ex-public sector is because they want a final salary pension scheme. To actually compensate an individual if they’re losing [such a] scheme is huge.”

The BLP-Thames Water move is not entirely novel. And the firm could do worse than look at ­previous historical examples. Nabarro took on British Coal’s legal team in 1990, accessing a non-City base of its own in ­Doncaster.

The venture was a success, because while Nabarro gained industrial and health and safety expertise, the shift for the British Coal lawyers, the majority of whom continued to operate out of their original base for around eight years until the lease came up and they moved to Sheffield, was less abrupt. Now Sheffield is Nabarro’s lower-cost base, ­a ­situation bolstered by a recent management decision to relocate its ­switchboard, IT and much of its back office functions there.

By keeping the Thames Water lawyers in Reading BLP could also gain a non-City foothold, which would be useful as it seeks to roll out its managed legal services model to other FTSE100 clients.

Here Nabarro’s experience may be instructive once more. ­”Initially, when we took [the Doncaster office] over, the work was 100 per cent British Coal - then British Coal ceased to exist,” recalls ­Nabarro managing partner Nicky Paradise.

There is no suggestion that Thames Water will not exist in five years’ time, but with BLP gaining a foothold in Reading, with firms generally looking at ways of ­outsourcing to lower-cost bases, the office’s future could be long.

luke.mcleod-roberts@thelawyer.com

BLP’s EXPERIENCE WITH THAMES WATER

• £4bn-plus Thames Tunnel and Lee Tunnel proposals. The tunnels total more than 40km in length and are designed to help prevent pollution in the tidal reaches of the Thames.
• SAP and GISF software implementation projects.
• Multimillion-pound improvements to two sewage treatment works.
• The board on owner RWE’s £8bn sale of its subsidiary to Macquarie Bank.