£330m cost-saving initiative could see law director role axed and lawyers liable for negligence
Kent County Council (KCC) is floating plans to spin its legal function out into a separate company, in what would be the first example of a public sector organisation adopting an alternative business structure (ABS).
Under the plan the local authority (LA) could transfer its in-house legal department to an arm’s length company, which would hold a contract with KCC to provide it with legal services while also competing for private sector work.
If such a company is formed, ownership and profits will be split between the LA and staff shareholders.
KCC wants to save £330m in the next four years and may also make the director of law and governance role, currently occupied by Geoff Wild, redundant, creating instead the position of director of governance and assurance, which would have a wider remit but be paid around 20 per cent less.
A KCC spokesperson said: “[KCC] so far has a successful model of legal services and we’re proud of that. We’re transforming the way the organisation operates to make sure we deliver our services to residents in the best possible way.
“As part of that restructure we’re exploring the best way forward for our legal services, which includes the possibility of developing them into an arm’s length company.”
However, Bevan Brittan partner and local government specialist Peter Keith-Lucas said the project could prove problematic, as there would be no guarantee that the council would pass all its legal work to the spun-out business.
“The question this poses is whether the legal team would retain the loyalty of the LA,” he argued. “If you’re an in-house service you’re probably good at a narrow range of services, but you don’t necessarily have the breadth or resources of private practice.”
It is thought that some elements within KCC are hopeful that creating a separate company would also allow the LA to sue the company’s lawyers if it felt there was a case of professional negligence.
But Steven Holland, head of the professions and risk department at insurance broker Lockton, pointed out that the subject of liability would be hotly contested.
“When we get to [the professional indemnity insurance] renewal [date on 1 October] next year, we’re going to have to address ABSs,” he said. “If there’s [external] ownership then qualifying insurers may say they want some caveats.”