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What are local authority legal departments for?

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Shared professionals iStock 000009503395Small Newsletter pic 146x219Not long ago this was not a question often asked, writes Nicholas Dobson. For the answer was beyond obvious: to provide legal advice and support to the employing authority. End of!

Status

For many years legal departments were high status units within local government. And Town Clerks had been towering figures. Distinguished former local government lawyer, Sir Rodney Brooke, pointed out (in a November 2005 article in LGC’s Anniversary Supplement) in the early decades of the 20th century:

"Confident in their place at the apex of power, the great county clerks of Lancashire and West Riding would summon the permanent secretary to meet them in Claridges when they visited London. The station master would hold the London train until the great men arrived.

"Even in cities outside London, town clerks could still intimidate members. In the 1960s, in Leicester, councillors would rise to their feet when the town clerk, Sir George Ogden, entered the committee room. Sir George would tell the councillors what they had to do, then retire. He did not deign to stay for their discussion."

Not a scene recognised in many twenty-first century councils! However, when I first became a local government lawyer in 1985, the slightly more elevated standing of local government lawyers remained, if substantially diluted from former glory days. For law was still then seen as constitutionally integral to local government functioning.

CCT

But then with the Local Government Act 1988, along came CCT - Compulsory Competitive Tendering. This started off with manual services (refuse collection, building cleaning, ground maintenance etc) and subsequently (following a December 1993 consultation) absorbed ‘white collar’ activities, including legal services.

Although (despite strident and widespread criticism at the time) in retrospect this brought many benefits (including focusing authorities on service efficiency, effectiveness and economy and ‘outcomes’ rather than the traditional ‘inputs’), one adverse consequence was commoditisation of local authority legal services.

For pricing up legal services specifications meant that diverse items of legal service began to be seen as different types of legal ‘widget’ rather than as core constitutional components. The standing of local government lawyers consequently began to diminish and there began to become increasingly fewer top table corporate legal adviser positions and proportionately more Heads of Legal Service positions at third or even fourth tier. For once local government lawyers had been pushed off their mystical perches, politicians began to question the budgetary priority of what many considered to be merely backroom legal bureaucrats (i.e. unfertile voter ground) as against electorally sensitive front line services.

Austerity

And then came the national fall from financial grace and ejection from what in retrospect now seems a relative Garden of Fiscal Eden. This might be epitomized by the May 2010 note from former Treasury Chief Secretary, Liam Byrne, to his Coalition successor, David Laws: ‘'Dear Chief Secretary, I'm afraid to tell you there's no money left....". And the stark truth of that message is now daily experienced by local government with continuing and increasing resonance.

So not content with tolerating local government lawyers as a necessary, if irksome. overhead, many local politicians now expect their legal departments to earn their own keep – and some. So as well as the number and variety of legal shared service arrangements across the land, many local authority legal operations are expected to raise cash to contribute to the overall budget of their authority or authorities. Which means selling services externally.

There are essentially two ways to do this. The most straightforward is to use the Local Authorities (Goods and Services) Act 1970. This allows local authorities to provide (for a fee if they wish) to any other local authority or public body specified by ministerial order, administrative, professional or technical services. And the scale of trading operations can be extensive (see Simon Brown LJ in R v. Yorkshire Purchasing Organisation, ex parte British Educational Supplies’ Association (CA (1997)  95 L.G.R. 727).

Many local authority legal heads have therefore used the 1970 Act to budgetary advantage. A prominent example is Geoff Wild of Kent County Council, who on 2 August 2012 wrote in the Law Society Gazette that:

"Kent County Council Legal Services has built up a thriving external practice based on providing high-quality, low-cost legal services to local authorities and public sector bodies across the country, which now accounts for more than 25% of its overall income and generates £1.5m a year. . . To achieve this, Kent has primarily used the powers contained in section 1 of the Local Authorities (Goods and Services) Act 1970 to make agreements and trade with other public bodies for the supply of legal services."

But with the partial relaxation of professional restrictions (see Rule 4.15 of the SRA Handbook) and extended trading powers through specified corporate media both in the Local Government Act 2003 and the Localism Act 2011, legal departments are now able if they wish to broaden the extent of trading beyond other authorities and public bodies into the private and other sectors. However, to meet statutory requirements this must be through a company or other specified corporate medium.

Various authorities (including Buckinghamshire County Council with Buckinghamshire and Milton Keynes Fire Authority and HB Public Law - the shared venture between the London boroughs of Harrow and Barnet) are actively pursuing regulator authorisation (through the Solicitors Regulation Authority – SRA)  to form an Alternative Business Structure (ABS).[1]

Hugh Peart, Harrow’s Director of Legal and Governance raised a question mark at the Law Society’s 2014 In-House Conference as to whether local authority in-house lawyers could survive.[2] And although he was "....not saying that setting up a shared service and applying for an ABS [will necessarily be] right." Nevertheless, ".....we’d rather try that and be in charge of our destiny than have my chief executive receiving a call from Capita [about taking on the council's legal work]."

In Peart’s view an ABS licence might allow councils to generate extra income as the heaviest austerity cuts are expected to fall within the next four years. For his legal budget is to reduce by 60% by 2018 and previous cuts have been ‘trifling in comparison’.

So what are legal departments for?

The ‘core business’ of a local authority legal department is to provide corporate and operational legal advice, assistance and support to its employing authority for the benefit of the community the authority have been set up to serve. This still applies in multi-party local authority legal shared services arrangements.

Traditionally, legal departments were allocated an annual budget broadly referable to departmental and central service usage patterns. Following CCT, however, many legal departments changed to and have remained with zero budgets and ‘demand-led funding’ i.e. the legal department would bill its client departments for the services provided and the ‘billings’ would therefore constitute the legal department’s financial allocation.

However, as indicated, in the present age of fiscal austerity, many authorities are expecting more of their internal lawyers to the tune of generating additional revenues. Which raises existential questions as to why legal departments are there at all and what they are or should be for.

The reason for legal departments is fairly obvious, providing they are demonstrably economic, efficient and effective. Since they are not budgeting for proprietor profit they need only charge services at cost. And providing they are ‘lean’ both in systems and staffing and have frequent functional reviews so they are providing only those core, regularly required functions and services which they can economically, efficiently and efficiently provide, they are likely to represent the best solution for local taxpayers. For internal local authority lawyers also give the advantage of being integrated into the central constitutional operations of the authority, have an understanding of its history, political idiosyncrasies and nuances and are continuingly alert to safeguarding their authority’s legal welfare.

However, for specialist, sensitive or infrequently required services or to remedy questions of internal capacity, external local government lawyers will often provide the best way forward. And since many former local authority lawyers can now be found within external law firms, many private sector practices can offer the requisite depth of insight, experience and expertise at reasonable cost.

Should legal departments be trading widely?

So if the fundamental purpose of the local authority legal department (either serving one authority or as part of a shared service arrangement) is to provide corporate and operational legal support for the employing authority or authorities, should legal departments be geared up in terms of staffing and otherwise to be selling services not just to other authorities and public bodies but to private and other organisations?[3]

Given that the legal and regulatory structures now can permit this, the question is clearly one of local policy. Some authorities welcome and encourage broader trading, as long as core services don’t suffer and there are no other problems. However, others do not wish to see their lawyers prejudicing the local legal economy. And whilst for individual local government lawyers a wider client base is likely to provide greater breadth and depth of experience and job stimulation, there are potential downsides.

For to the extent that legal departments effectively become part of the private sector then they are subject to private sector commercial pressures. These include the substantial costs of (amongst other things): premises, staffing (including holiday, sickness and pensions), equipment (including IT infrastructure and software), legal resources, marketing and meeting continuing regulatory requirements. The rocky waters of procurement law (although potentially subject to concession for public sector mutuals in Article 76a of the Public Sector Procurement Directive) and State Aid will also have to be negotiated.

And of course, when you are in the private sector, by definition you are not in the public sector. For traditional local authority legal departments (even those within creative arrangements) are ‘under the wing’ of their authority. The wing may be much less comfortable, more draughty and less secure than before, but ultimately local authority employees are the responsibility of their employing authority.

But with private sector operations, even those where the authority has a significant ownership stake, it is the organisation that must pick up the tab for all costs. And with continuing austerity, many authorities are unlikely to be overly sentimental (even if law and electoral realpolitik permitted) about their separate legal services trading entities. Which for staff probably means heightened redundancy risk and a more hazardous organisational backdrop.

Conclusion

Identifying the core business of a local authority legal department is fairly straightforward. It is there to provide the legal, corporate and constitutional support that the employing authority regularly and routinely needs. But in the context of severe and continuing fiscal retrenchment, bridging the gap between the authority’s legal support requirements and what the authority is prepared to pay to pay for this is often now being seen as the responsibility of the legal department. So although many authorities are prepared to budget basic rations, legal departments seeking an ampler and more satisfactory diet are increasingly moving into ‘eat what you kill’ territory.

But ultimately these are policy questions for employing authorities. For whilst members may be right in believing there aren’t many votes in local authority lawyers, neither are there too many votes in things that fall apart because of non-existent or poor calibre legal advice. For, as the old saying goes, "You pays your money and you takes your choice". And if the choice is to cut back on internal legal support and into the bone, this is likely to mean either purchasing external legal support at market rates or risking serious service collapse or dysfunction. As Bob Dylan once observed, "money doesn’t talk, it swears".

Dr Nicholas Dobson is a Consultant with Freeths LLP specialising in local and public law. He is also Communications Officer for Lawyers in Local Government.

© Nicholas Dobson


[1] An ABS is a law firm where either a non-lawyer or another body (e.g. a local authority) manages or has an ownership interest in the firm and at least 10% of the body is controlled by non-lawyers. Any law practice wishing to become an ABS needs to apply for authorisation to the Solicitors’ Regulation Authority (SRA). Other authorities (e.g. Kent and Lambeth) are also pursuing the ABS model.

[2] See Law Society Gazette 15 May 2014.

[3] The concern amongst some private practitioners about local authorities venturing beyond their traditionally core business might be seen by this comment post on the Law Society Gazette website on 29 April 2014:

  "I don't understand this at all. If a council has legal work it can employ an in-house solicitor. Northing wrong with that and I know that council legal work is very challenging and worthwhile. I don't think the private sector could hack it . What I don't understand is why should a council employ solicitors to do work which has nothing to do with the council. This is all nonsense."