On 5th May this year over 1,600 law firms who currently provide legal aid criminal defence in England and Wales submitted a tender to the Ministry of Justice to continue this work.
From this month that number will be reduced to only 527 successful applicants. For those firms their fees will be reduced by a further 8.75% (following a similar cut the year before).
The legal market is naturally nervously waiting to find out who has been successful in their application. As the Law Society have said, “standing still is unlikely to be a viable option for most practitioners”, the question of action to be taken is not one of whether to take it, but when.
New business models in this market
For those firms that succeed in their application, this will mean almost a triple in their workload with a reduction in their fees. Changes in the criminal legal market are to be expected, with law firms arranging to work together to share this additional burden.
Joint Ventures are a way that law firms can work together to create a new firm which will take the initial responsibility of providing legal aid services. These services will then be distributed to all partners in the Joint Venture, who will then practically provide the legal aid.
An example of such a joint venture is S-LCD Corporation, a result of an agreement with technology providers Samsung and Sony to develop LCD technologies. Both Samsung and Sony own and manage the Corporation, though as a separate legal body, the Corporation is able to create contracts which has its own advantages.
However, performing services as a venture partner may lead to confusion over who is actually providing the services, and who is ultimately liable. Firms engaged in a Joint Venture therefore need to make sure that they clearly advertise this information in their client correspondence.
Merging law firms will create a new or adapted ‘super law firm’ made up of 2 or more existing firms who will transfer their solicitors, staff and business to this super firm. Mergers can either occur by an acquisition of one or more firms by another, or a formation of a brand new firm. In either method of creation, timing is a great difficulty of mergers, with the potential for the physical move of staff and business and the possibility of the need to re-apply for SRA approval.
Whilst Joint Venture agreements can be made in relation to a specific sector, allowing other sectors of a law firm to remain the same, mergers mean that the entire work of the firm is moved across, having implications for non-legal aid matters. This would result in disruption to these sectors for no apparent benefit.
Mergers can take the form of one firm with 2 or more branches, which would prevent the disruption to matters, though this carries similar confusion problems for clients as with Joint Venture Agreements.
Firms who want to work together to provide criminal legal aid without the necessary formality of a Joint Venture or a Merger may decide to enter into a Delivery Partnership. A collaboration and agency agreement means that one firm takes the responsibility of providing the services, but is then legally bound to delegate an agreed percentage of these services to the ‘delivery partners’.
However, one of the biggest risks of this model is that one firm – the lead contractor – has the full responsibility, whereas in the other 2 models, responsibility is shared between the different law firms.
How to Prevent Disruption in the Future
Whilst law firms are considering their options in relation to these reforms, it is worth acting in pre-emptive manner to reduce the stress that future market disruptions will place on their business. Examples of such pre-emptive behaviour involve systems to identify risks within the firm, and a risk management system in order to effectively deal with these problems.
Being proactive in this sense will likely maintain confidence and place these law firms apart from those that take disruptions as they arise.
Warning signs to spot the risks of potential market fluctuations include –
- No “succession plan
- Reliance on a small number of clients
- Competitive threat from new entrants
- Lack of focus on operational improvement
- High running costs i.e. property leases, salaried partners, pension