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19 November 2013
When the Victorian government announced at the end of last year that its law firm providers would be put to the test with a revolutionary centralised tender process, practitioners across the country went scrambling for their share of the multimillion-dollar booty on offer.
After state attorney-general Rob Hulls' 19 December unveiling of the tender document, everyone from sole practitioners to large national firms began preparing bids to display their wares to Victoria. In a static market, the open-door invitation that the government is offering presents an enormous opportunity for firms of all shapes and sizes.
From the outset, Hulls has made no bones about it. A centralised system will increase buying power, improve consistency and information-sharing between government departments, and force the hand of the legal community on issues such as pro bono services and equal opportunities. But the primary goal is to better monitor the level of government cash flowing into law firm coffers.
The new, centralised structure - the first among state governments in Australia - encourages all-comers by inviting small firms (those with 15 partners or less) to apply for roles at sub-component level on any or all of nine specialist panels. Each panel will be constructed of a number of niche areas of law, making it possible for a boutique practitioner to take a role on a broader panel, within which the niche sub-component will be contained.
Larger firms have two options. They could enter the race as specialist providers, applying directly at panel level for no more than two roles, or grab the carrot dangled in front of only the bigger practices, and pitch for positions on the overarching general legal panel. To do this, first they had to bid for places on a minimum of five panels.
In a statement, the attorney-general has said: "The Victorian government spends at least $40m (£14.65m) on legal services each year, and I want to ensure that the government is getting the best possible advice at the best possible price.
"I don't just want a small, select bunch of law firms at the top end of town handling government work. Any law firm, large or small, will now be able to tender."
Quite how the attorney can claim that work is farmed out to such a niche group of providers is puzzling. Since the corporate world-modelled tender process began, his team has consistently stated that one of the aims of the new system is to dramatically cut down on the estimated 75 firms - hardly a small group - that currently provide advice to the government.
In the 1998-99 financial year, between $35m (£12.82m) and $40m (£14.65m) was spent across the Victorian government, procuring all manner of legal advice, and there is little doubt this cost has grown.
Centralisation will give the state greater control over its outgoings, and the planned establishment of a central database of legal precedents should cut back on the duplication of advice.
"Up until now, the provision of legal services has largely been an unsupervised feeding trough for law firms," says the attorney-general. "These reforms will save taxpayers' money by ensuring that the government gets the best advice for the best price."
Since releasing the tender, the government has made it plain that it will use its buying power to leverage a better deal from law firms, and this starts with fees. After auditing the 1998-99 spend, the Department of Justice has come up with a benchmark list of fees, ranging from $106 (£38) an hour for an articled clerk, to $344 (£126) an hour for a partner.
The government says that the issue of fees has been misunderstood by some who are tendering as an attempt to manipulate the market. It says that it drew an average rate from what it was being charged at the time the tender document was prepared, and that firms were free to put forward bids containing premium or discounted fees. The panel contract also includes provisions for increases in fee rates during the initial three-year appointment.
But while many lawyers will privately admit to finding the fee scale at the lower end of reasonable, none will openly criticise it and most have put their hands up for a role.
"We all knew what we were getting into, and it was up to each firm," says Blake Dawson Waldron's Melbourne managing partner Rob Jamieson. "It's part of the business of doing government work. It's discounted, but at times you get a good volume of work, you get some really good quality work, and it is interesting."
Jamieson, who worked on preparing his firm's tender for the general panel, says that Blakes decided to bid in an effort to shore up its client base, which already includes a wide range of government departments. He appears unconcerned by the state's failure to provide a guideline on exactly how much work panel members will receive in a year, and says that many lawyers will be pleased to take on a three-year appointment - particularly with the option of two two-year extensions.
"The government is saying that it's going to reduce the number of people it uses, so there's opportunity there. If you're successful and you're good, and you create the right impression, all I can see is an upside," says Jamieson. "If the market is a little bit tight you've got an opportunity for work if you're on the panel."
While the level of work for each firm will ebb and flow, Jamieson says the government's decision to formalise its panel arrangements reflects what is going on in the wider business world. This view is supported by a recent report that surveyed the legal departments of nine key Australian corporates on their selection of law firm advisers.
Carried out by the Australian Professional Services Marketing Association (Apsma), the study shows that a third of respondents plan to 'significantly reduce' the number of firms advising them, and all are intending to push for cost cuts.
"Because of issues such as convergence in the market, corporate governance and cost, many organisations are putting their work out to tender," says Apsma president Lynette Nixon. "We all need to recognise that we're dealing with sophisticated buyers - the whole balance of power has changed."
Nixon says law firm survival depends on the ability of firms to move away from old-style transactional practice and channel their energies into developing sophisticated client relationship programmes which nurture key contacts. So perhaps it is the opportunity to establish a long-term relationship with the Victorian government that has propelled so many firms to tender.
Amid claims that some practices have spent upwards of $10,000 (£3,664) in chargeable hours just getting their pitch documents up to scratch, the Department of Justice reports that it has had an enormous show of interest.
The application period, which closed in the middle of last month, attracted some 100 tenders, and bureaucrats are now wading their way through a sea of paper in the hope of securing the very best return on the taxpayer's dollar. So popular has the process been, that other state governments are thought to be considering implementing similar arrangements.
"We've had the full range of lawyers apply - sole operators, boutique firms, middle-sized firms, and obviously the large, highly-organised firms," says Allan Merigan, project manager for the Government Legal Services Project.
"There's going to be a rather large sum of money floating around the contract, and it is reasonable to suggest that the Victorian government will be among the legal industry's largest clients. We said that we'd ensure there was an equitable distribution of the opportunity to quote for work, so we made sure we allowed specialist firms to apply to become a specialist panel member."
The specialist panels will span a wide range of legal subjects, such as property, commercial law, litigation and projects and finance, while the wider, general panel will address all manner of subjects. However, there has been criticism from some quarters that strange bedfellows can be found among the components of some specialist panels, and quite how it will all work remains to be seen.
Merigan says that it is expected that no more than five slots will be allocated on each of the specialist teams, while 10 firms will be awarded places on the generalist panel.
He says assessors will be examining bidders on a number of issues and points will be awarded or deducted accordingly. Evaluation will be completed by the end of the month and the panel members will be appointed by 1 July.
One of the key issues being scrutinised by assessors is the pro bono commitment that each firm offers. Regardless of size, those applying for any aspect of the tender are required to agree to set aside a minimum of 5 per cent of fees generated by panel work for pro bono projects. Firms could opt to provide free legal services to the value of the agreed amount, or make a cash payment to the pro bono community via the government.
Some might say that this seems simple enough, but in practice it has left bidders confused. For some years now, Australian practices have been operating their own pro bono programmes, the scale of which varies from firm to firm, but with free-of-charge work now a prerequisite of tender, exactly what constitutes a pro bono commitment is unclear.
So far, the government has done little to clarify the situation, simply stating that the attorney-general will assess the needs of community groups on an annual basis and firms will then negotiate their commitments with the yet-to-be-appointed Director of Government Legal Services. But Hulls' team does reject claims that pro bono services channelled through the tender will have the knock-on effect of reducing the government's legal aid budget.
"The government is seeking to increase the overall range of pro bono services provided by the legal profession," says Merigan. "The attorney is known to have a strong interest in promoting legal aid, and the pro bono aspects of this tender should certainly not be seen as a replacement for legal aid funding."
One concern is that groups and individuals who currently receive money and assistance from lawyers may lose out if they are not judged to have key needs.
Victoria's Public Interest Law Clearing House (Pilch), currently one of the major beneficiaries of the legal profession's community spirit, says it has had a number of enquiries from firms since the tender was announced.
"It has caused a bit of consternation among law firms, because they don't know what is approved," says Pilch's co-executive director Emma Hunt. "There's been no definition of what is approved pro bono activity."
Hunt believes that by tying pro bono services into the tender process, the government will force firms to weigh up the commercial realities of the extra-curricular advice they provide, and that this will be devastating for groups that risk losing funding and support. But she remains optimistic that the Department of Justice will address the issue during the selection process.
"As far as Pilch is concerned, it has been a little bit difficult," she says. "It leaves a big question mark for most of the law firms about whether their pro bono programme is going to satisfy the attorney, and whether he is going to approve what they do. To link pro bono obligations with the tender process does have some problems with it, and those need to be worked out. But it's a new idea, and it hasn't been done before, so there are going to be some glitches."
At this stage, it seems that the clearest message coming out of the tender process is that nothing is actually clear, and it remains to be seen how well the panel structure will actually work in practice. But at a time when lawyers in many countries are complaining about the dip in work brought about by fluctuations in the economy, the opportunity to sign on a prestigious, secure and long-term client presumably makes all of the confusion worthwhile.