20 March 2000
The booming private finance market means that multimillion pound government contracts are up for grabs, but who will win them and why? Claire Smith reports.
The Government might not have the strongest reputation for putting its hand in its pocket, but when it comes to choosing outside legal advisers the public sector does not shy away from top City talent.
The booming Private Finance Initiative (PFI) market means there are multimillion pound contracts up for grabs, and despite the obligation to be frugal with taxpayers' money, the government lawyers keep going back to the big boys.
"All the accomplished experts in PFI are still at the moment City based," says Tim Collins, a lawyer in the Treasury Solicitor's Department. "Even if we were to use provincial firms, you could guarantee the banks would be using City firms.
"There is a very strong pressure on us on the contracting side, driven by the funding side, to use City firms of lawyers."
The Solicitor's Department selects outside lawyers for government departments that do not have a legal advisers. Collins says his biggest client is the Home Office, but he has also found outside lawyers for the Department for Employment and Education (DFEE) and the Ministry of Defence (MoD).
Other departments - including Trade and Industry (DTI), Environment Transport and the Regions (DETR), and Health and Social Services (DSS) - have their own legal advisers to choose firms for them.
Collins is working with Freshfields and Denton Wilde Sapte on two multimillion pound PFI projects.
But if firms think they have got a foot in the door they should think again, because all public sector lawyers stick to the tendering principle. Whether at central government or local level, a tendering process is used for each individual job.
Elizabeth Hambley, a Treasury solicitor dealing with procurement, says: "In some cases we put advertisements in the legal press, and others we choose a group of people to invite in to tender. We have an obligation to run a competition and we have to be able to justify our decisions."
Hambley is adamant that it is not always the same names which are put forward. She says: "If you are not having an advertisement to the whole world there is always an element of knowledge involved, but it will never be the same people appearing every time."
Michael Carpenter, head of the cabinet office and central advisory division, says: "We are always in a sense testing the market and testing our assumptions about particular firms. We will draw in firms that we have not used before just to see what they come up with."
Despite the constant competitions, Hambley says there are only about 20 firms that have the necessary expertise to handle public sector work. Advising the Government requires a unique way of looking at things, which comes from experience.
Carpenter says: "We have come across individuals who are able to think their way around particular problems, and those are the people we want to work with.
"There are people who are so imbued with a firm's way of doing a transaction that they say 'it must be done that way because that's the way we have always done it' - but we are not so keen on that sort of approach. We want people who can think imaginatively about how public and private interact."
It is a view echoed by Martin Walker, borough solicitor for the London Borough of Wandsworth. He says it is essential that a firm previously has worked with the public sector if it is going to work on significant projects.
He says: "I think for the more specialist projects our expectation would be that a firm would have local government experience. When it comes to tendering out the more mainstream work such as conveyancing and litigation, local government experience is less relevant because it is legal work that any competent firm could do. There are particular things that are special to local government. The way that it is run and managed - you need a firm that can understand that."
Apart from demanding that little bit more imagination from law firms, public sector lawyers probably ask for much the same as any private sector company.
The fact that they are spending public money weighs heavy on their minds, but Hambley says it is important to remember that value for money does not always equate to cost.
She says: "As far as lawyers go the question of getting value for money does not necessarily mean the cheapest price. You have got to make sure you have got the best people."
Sifting out the right people through a tendering process is not always easy. Public sector lawyers universally say that they only use directories as a back-up and instead draw on the knowledge of the 1,000 lawyers across local and central government.
The firms' initial responses to an invitation to tender can often be the factor that will decide which firm eventually wins.
"You can tell the appetite for work from the response. Some firms think that their reputation stands for all, but we want to see it demonstrated," says Hambley. "We do send out a detailed invitation to tender and they send back a detailed response on how they will do it."
Carpenter says firms should show detailed knowledge of issues they anticipate and outline how they would deal with them. And when firms are called in for interview, he is not interested in meeting their client relation partners.
"We are keen to see the people who are going to do the work rather than the people who are skilled at talking to clients," he says.
The relationship with individuals is so important that Collins says contracts are kept under review because of the speed with which lawyers move between firms.
He says: "You want continuity of experts and continuity of the service of particular people. You have a decent working relationship with individual people, but it is quite difficult to have a relationship with any commercial firm.
"You may have continuity at partner level but we are not involved with them every day. Most of the assistants are in the two to three-year qualified range and they move all the time, so we keep our relationships with firms under constant review. We never sign anything we can't get out of.
"What you hope is that the firm that you are working with will have the depth and the strength of the skill within it to replace one person with another. They should be able to adapt and be flexible."
David Hogg, legal adviser to the DETR, says the size of firm is quite often a factor when a big PFI project is being tendered out. His department was responsible for one of the largest public private partnerships ever completed - the £4.5bn project to build the Channel Tunnel Rail Link. For that project the department used CMS Cameron McKenna.
Hogg says: "It may be that a project is required to be delivered in an extremely short space of time, and in such a case the size of the firm and the amount of resources it could field would be a significant factor."
He says conflict of interest is also a big problem in large public sector projects, because the small number of firms leading the way in projects means that the big players are often already on the other side.
But while Collins and Hogg appreciate the importance of City firms, they try to avoid always using the big players.
"If you are looking for a firm to deal with a privatisation or financing then that is likely to be a City firm, but if you are looking for a firm to do lands work in the South West it will be a regional player.
"We do try not to be London-centric and we are conscious of the need not to be. We are very keen that work should be
spread around so that there isn't a magic circle or anything of that kind," says Hogg.
Very few departments even operate panels of legal advisers, preferring instead to take each project as it comes. And while that means there are always opportunities for new entrants in the market, it is countered by the need for experience of the sector.
For the law firms already in on the game there is no time to rest on their laurels, as there is no such thing as an established adviser to the public sector.
And the PFI phenomenon looks likely to grow and grow. The market is becoming more fragmented, with firms beginning to divide into niche areas such as health and housing projects, and the concept is being picked up internationally.
Carpenter says: "The government is very keen on bringing the public and private sector together, so we need to have the commercial law experts and the capacity. There will be a lot of projects coming up, and a lot of work for lawyers."