Evidence submitted by Fisher Meredith
(LAR 119)
INTRODUCTORY MATERIAL
Fisher Meredith is a prominent South London
law firm operating from one set of premises in Kennington. There
110 staff including 80 lawyers.
Eight of the 10 departments deal with publicly
funded legal work which accounts for about 70% of all fee income
(around £4 million).
The firm has been in existence for 31 years,
has 11 contracted areas of law with the Legal Services Commission
(LSC) and was chosen after fierce competition to be one of 25
firms nationally in the LSC Preferred Supplier Pilot.
The firm currently has £1.7 million of
unpaid legally aided work in progress but because of the lengthy
delays in payments in publicly funded work the firm has to borrow
£800,000 from its bankers at an annual cost of around £55,000
in interest payments.
The range of publicly funded legal services
covers family, children, housing, crime, community care, education,
prison law, civil actions against the police, public law, professional
negligence, immigration, mental health and employment.
The firm prides itself on a progressive and
dynamic approach to law firm management and has won a number of
industry awards over the past few years, the last of which was
last week being "Highly Commended" for the "Best
Employer" category at the Law Society Race Equality Awards.
(a) Whether there is a need to modernise
the procurement of Legal Aid?
1. The Legal Aid system faces considerable
challenges. The supplier base is contracting and there is little
in the way of incentives for highly indebted law graduates to
go into what is a relatively poorly paid areas of law whilst rewards
in other legal sectors are much higher. Those undertaking publicly
funded legal work face a consistent struggle against increasing
levels bureaucracy imposed by the LSC and pressure from non-legal
aid partners in law firms who increasingly see this type of work
as a drain on profitability.
Set against this successive legal aid Ministers
complain of the increasing cost to the Legal Aid Fund, currently
£2.1 billion, whilst praising the efforts of dedicated legal
aid lawyers and reaffirming that legal aid is a pillar of the
welfare state alongside education and health. They say it is a
public service funded by private capital.
Fisher Meredith (FM) accept that the system
has grown up piecemeal over the years and is unduly complex bureaucratic
and fragmented. There is very little incentive for new owners(except
in crime) and the aging profile of equity partners reflects this.
2. In relation to criminal work there has
been an increasing fragmentation in recent years. This has resulted
from there being little in the way of barriers to entry for new
firms breaking off from established firms. This process is helped
by the LSC effectively bankrolling any new crime firm for the
first six months by the use of standard monthly payments. This
has meant that established firms who offer a full holistic service
to clients and have taken time to build up a substantial infrastructure
with appropriate levels of training and development suffer loss
of market share each time a new firm breaks off and sets up. There
are over 490 contracted crime firms in London.
3. The Carter paper attempts to address
this process of fragmentation but the fact remains that the cuts
in fees anticipated, which for FM would be of the order of 15%
in 2007-08 for police station and magistrate courts work and over
20% for Crown court work would mean that the FM crime team, which
is currently barely profitable, would not survive the transition
stage to "steady state" in 2010.
4. FM accept in general terms the rationale
of discounted price for greater capacity and would wish to take
advantage of this if it were available in crime since concentrated
work in a local area would mean that there would be a rise in
the average hourly rate because of the commensurate reduction
in spend on travelling and waiting (work paid for at the lowest
end of the payment scale).
5. The civil and family proposals which
were published in the LSC/DCA document "Legal Aid: a Sustainable
Future" came as a huge surprise and shock to the profession,
there having been virtually no consultation with the profession
and representative groups about this.
The new structures for public law children,
private law family, mental health, immigration and a regional
or national average fee for other civil cases previously dealt
with under the tailored fixed fee scheme would mean huge potential
losses particularly for specialist firms in London.
FM have for a number of years filtered out simpler
cases so that these could be dealt with by for example, not for
profit agencies or the like and concentrated, with a cadre of
experienced solicitors, on specialist complex cases particularly
those challenging public authorities. We consider this to be the
best use of the Legal Aid Fund and the best use of the skill sets
available to us.
Our overheads are necessarily much higher in
London than in the provinces. Salary scales for secretaries and
support staff and basically for all other services including rent
and rates are substantially higher in London than in other areas.
Legal Aid rates in civil and family work have been pretty much
frozen for a dozen years and we have struggled each year to maintain
viability and really only been able to continue to survive in
circumstances where we make efficiency savings through automation,
gearing, through delegating work to the right level and by working
substantially longer hours each year.
The LECG report in particular as well as material
from Andrew Otterburn and PKF supplied for the Carter Report indicate
that legal aid firms particularly criminal legal aid firms operate
on the margins of profitability and that those margins, having
taken account of interest on capital accounts and notional salaries
to partners, are in the range of 4% or less. As the LECG report
states these margins are considerably less than comparable sectors
such as insurance broking or financial service work where margins
of 10-15% are the order of the day. Our current margin is less
than 4%.
It has been very difficult to firmly establish
the levels of losses which we would suffer within year one ie
2007-08 because the LSC's data is worked out on assumptions which
have not been shared with the profession. On the figures which
we have run for our financial years 2005-06 (ie to 30 June 2006)
we anticipate our losses in year one ie 2007-08 would be as follows:
Mental health 20%
Immigration 25%
Public law children 25%
Private law family 25%
Actions against the police 20% (controlled work)
Housing 20% (controlled work)
Community care 20% (controlled work)
Education law 15%-20% (controlled work)
Public law 20%
It is said by the LSC that the proposals are
cost neutral in relation to civil and family work. This is clearly
not the case in relation to those who have a higher average cost
per case because they undertake more specialist complex work and
especially those who operating from London. It seems to us that
we are precisely the type of firm that could anticipate a "double
whammy" with losses of around 20% across the board which
would make the whole future of legally aided work at the firm
unsustainable.
6. Our bank (RBS) who currently lend us
£800,000 (because we undertake publicly funded work) would
not find these sort of losses and additional borrowing acceptable
and would demand that we downsize departments and the firm generally
and move towards the gradual withdrawal from legally aided work.
This would be a huge loss to the London Borough of Lambeth, one
of the local authorities with the highest level of deprivation
indicators since we are probably the largest firm still offering
legally aided services in the whole of South London.
7. We have established the reputation for
being a very efficient and well thought of training institution
for young lawyers and have very close links with the College of
Law, mentoring candidates particularly from BME backgrounds. The
withdrawal of this sort of service would increase what is already
a current recruitment crisis whereby those entering the Legal
Aid sector can expect to earn almost £30,000 less than their
contemporaries undertaking non Legal Aid work. (FM newly qualified
salary £27k. City firm newly qualified £55k). We note
that the Carter paper and the LSC paper are completely silent
on the question of the recruitment and retention crisis and training
young lawyers generally.
The transition fees for management help and
automation help of £6,000 maximum are simply derisory. For
example the capital cost of video conferencing is around £7,000
or £8,000 alone with an annual running cost of around £6,000.
8. Fixed fees are likely to have a significant
effect on quality standards. We achieved an excellent peer review
ratings in four out of seven areas of work examined. We see a
clear link between high peer review scores particularly for those
undertaking specialist complex work and higher average cost per
case.
9. We also anticipate difficulties in moving
towards a "steady state" and that the government will
renege upon promises to stand by market rates if this does not
suit them. The proposed contract allows the LSC to determine our
contracts at three months notice. The usual business cycle is
three to five years and notice of three months is simply ridiculous.
We face the further threat that if the LSC plan a Community Legal
Advice Centre in our area we would be forced to give up all our
civil and family work at a stroke.
10. We cannot see that there will be any
reduction in transaction costs and believe these to be illusory.
We will still be required to provide a substantial amount of information
to the LSC who are painfully addicted to the micro management
of suppliers. In any event in civil and family cases where our
costs may be paid by the other side we would have to prepare bills
for assessments of costs in the same way as we had done in the
past with no reduction in potential labour or administrative costs.Our
overview is that although there is a compelling argument for proceeding
with reforms of the currently dysfunctional criminal law market
in conurbations there is no such compelling rationale in relation
to the civil and family budget which is effectively under control
and has remained so for some years. We believe that the civil
and family proposals need much more thought and that an extension
to the consultation period whereby serious negotiations can take
place between the representative bodies and the LSC should occur
over a period of six months with a view to reforms being implemented
not before April 2008 at earliest.There needs to be a much greater
alignment of the fees paid between barristers and solicitors.
The Bar remain untouched by these cuts and these proposals generally.
If a solicitor undertakes a final hearing in a care case payment
will be about £500 in total no matter if the case runs for
several days whereas Counsel will be paid a daily rate of more
than £500, sometimes as much as £1,500. This sort
of unfairness is unforgivable.
(b) Whether the timetable for implementation
suggested in Lord Carter's Report is realistic
1. This issue is dealt with above. There
are compelling reasons why the criminal reforms need to continue
within the timeframe specified but the civil and family reforms
need further negotiation and discussion before implementation
at earliest in April 2008.
(c) What benefits might be generated for
defendants and others by adopting these proposals
1. The main beneficiary will be the government.
It is difficult to envisage what if any benefits will accrue to
legally aided clients. The number of legal aid providers will
decline, potentially creating advice deserts outside of conurbations
and prominent high quality suppliers will either downsize or close.
This seems contrary to Lord Carter's stated aim of putting quality
at the forefront. There seems to be a complete contradiction between
the need to ratchet up service standards for their Preferred Supplier
Scheme, ensuring peer review scores of one or two and the notion
that all legal aid work is to be commoditised and undertaken by
the least skilled members of staff, (mostly unqualified). The
Minister concerned was asked how firms should restructure and
was unable to answer this point simply saying it was not for her
to say how firms should restructure. This is simply not good enough.
Fixed fees are supposed to operate on a swings
and roundabout basis. Unless a firm has a large enough mix of
cases this principle will not have any effect and will only result
in losses particularly those who like FM have a preponderance
of more complex specialist cases.
Under a fixed fee regime there will be no incentive,
(indeed quite the reverse) to take on cases for clients for whom
English is not a first language, mentally disordered clients,
those with drug and drink problems, indeed a fair selection of
the socially excluded.
2. The Strathclyde University Research of
Stevens and Tata indicates that when fixed fees for criminal work
were introduced in Scotland quality suffered.
3. FM anticipate that the same effect will
occur in England and Wales once these proposals are implemented.
Clients will be increasingly frustrated by limitations on suppliers'
ability to act for them and there will be a distinct lack of "equality
of arms" when we and our clients are opposed by government
and public authorities generally upon whom there are little or
no restrictions in terms of time spent on cases.
(d) What impact the proposal will have on
different communities (such as black, minority, ethnic and rural
communities)?
FM have always prided ourselves on supplying
service particularly in our home borough, the London Borough of
Lambeth which is one of the most ethnically diverse boroughs in
the UK. A downsized or lower level of service will disproportionately
affect large numbers of clients from ethnic minority communities
in Lambeth.
(e) What impact any or all of the recommendations
will have on Legal Aid providers
This issue has been dealt with under the heading
"Modernising the Procurement of Legal Aid".
(f) How will proposals affect firms of differing
size, structure and practitioner mix
It is likely that the only firms that will be
able to effectively survive these reforms will be firms within
the provinces who have no particular commitment to quality who
operate a factory model with work undertaken by low skilled paralegals
supervised in clusters by a few qualified supervisors. The standard
of work will not be high and clients will suffer since outcomes
will be of no interest to suppliers who will be guaranteed work
because they are prepared to be paid at bargain basement levels.
(g) Whether the measures proposed will promote
the provision of high quality advice and support the effective
and efficient of the justice system
We are convinced that the proposals will not
promote high quality advice and it is hard to see how these proposals
can promote efficiency to any significant extent. The proposals
put the future of legal aid at risk by making it less than viable
for a significant number of suppliers. It is therefore likely
that clients will experience a reduction of access to justice
with remaining suppliers operating a factory production line approach
rather than a bespoke service which addresses clients needs in
the holistic way.
There needs to be a thorough rethink on
the civil and family proposals in particular and a recognition
that the civil and family budget is substantially under control
and there is no need to place under threat such an important yet
vulnerable market of suppliers.
October 2006
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