Evidence submitted by the Association
of Major Criminal Law Firms (LAR 125)
1. The Association of Major Criminal Law
Firms is a group of law firms working in the field of criminal
law. There are 32 member firms in London who represent about a
third of the LSC spend on criminal law in the police station and
magistrates' courts in the Greater London area. The London firms
are supplemented by around 20 large criminal law firms in Birmingham
and Manchester. The latter firms represent firms with the majority
of the lower crime spend in those cities. The Association was
set up in 2004 directly in response to changes in the procurement
of publicly funded legal services in criminal law anticipated
by the LSC and DCA.
2. The Association therefore represents
a majority of the "major players" in the London, Birmingham
and Manchester criminal law market. It contains firms with a longstanding
track record and high profile in major criminal law cases. The
Association has been committed to engaging in constructive dialogue
with the LSC and DCA to ensure and preserve access by clients
to good quality criminal defence services. In general terms most,
if not all of the Association members receive a spend of over
half a million pounds in lower crime under contract from the LSC.
3. The Association has broadly welcomed,
with some reservations, the analysis of the criminal law market
by Lord Carter and his team and has accepted that the current
system has grown up piecemeal over a lengthy period of time. It
is fragmented, complex, costly and bureaucratic, and very few
are satisfied with the way in which the present system currently
operates.
4. It is unfortunate that the Carter team
were specifically deprived of the opportunity to incorporate within
its report recommendations about the greater degree of joined-up
government within the criminal justice system and was given a
chance to examine the substantial cost drivers within the system,
particularly the hectic plethora of government legislation.
5. The vast majority of criminal law firms
within the Association are dissatisfied with the present system,
particularly because of the problems associated with fragmentation.
What has been occurring over a period of years is that larger
firms who have committed to infrastructure spend, have spent time
and money on training and developing young lawyers, faced the
continuing prospect of new firms breaking off and setting up in
competition because there has been little in the way of barriers
to entry to the market. This has been exacerbated by the LSC bankrolling
new firms in their first six to 12 months through standard monthly
payments. The net result has been a consistent decline in market
share because new firms obtain market share through duty solicitor
allocations. These new firms rarely commit to training and development,
or infrastructure spend and are generally in it for the short
term.
6. The Association therefore welcomes a
move to "fewer larger firms", since it is difficult
to justify, for example, the fact that there are over 490 contracted
firms undertaking lower crime work in London.
7. The principal concern for the Association's
members who have engaged in a real and meaningful dialogue with
the Carter team throughout, is whether these well-established
prominent firms can survive the transition to "steady state"
in 2010.
8. The research contained within the Carter
report through Otterburn and PKF comments on the need for better
levels of gearing in law firms undertaking legal aid work but
says that even the best performing highly geared firms can rarely
achieve margins obtained in comparable sectors. The highest levels
of profit margins appear to be at around 5% whilst comparable
sectors such as insurance or finance expect margins of 10-15%.
There is therefore a fragility and vulnerability within the market
that needs addressing and to cut fees prior to providing greater
capacity would seem foolish.
9. The Association's members in general
terms accept the rationale that greater capacity in a concentrated
area for a marginally discounted price is something that the Association's
members could sign up to since a reduction in travelling and waiting
from those changes would mean that the average hourly rate would
go up and the work in turn would become more profitable. Otterburn
commented that some crime firms with high levels of gearing found
it almost impossible to make the work profitable at present and
therefore cuts would only further their decline.
10. The projected savings in year one 2007-08
are £23 million in lower crime and £24 million in Crown
Court litigators' fees (nationally).
11. The losses in London for year one are
high. Even on the LSC's figures, which urgently need verification,
the loss of revenue for police station work for London firms would
be in excess of 12%. There appears to be a fairly extreme redistribution
of money from London to the provinces despite the fact that London
overheads are substantially higher. This seems to make no sense
at all.
12. The Association's members could not
withstand cuts in year one and two in advance of additional capacity
being granted to them. At present it is not known how London and
the major conurbations will be divided for the purpose of the
establishment of duty solicitor schemes and meanwhile the process
of fragmentation continues apace.
13. The Carter reforms presage potentially
a major reorganisation amongst law firms. The LECG report says
that 800 out of 2,200 firms may have to merge or disappear. Just
at a time when firms will be undergoing this major restructuring
and when they will require capital input they will be facing the
most serious level of cuts. This very serious issue needs to be
addressed.
14. The transition fees for management help
and help with automation (£6,000 in total) are frankly derisory.
The sorts of costs involved with relocation, redundancies, TUPE
commitments, high levels of automation through software purchase
and associated training will probably run into hundreds of thousands
of pounds for some of the firms involved. There needs to be a
capital injection into the market to enable this transformation
to occur.
15. There is major concern that the contract
proposed carries a three month notice period. Firms are expected
to restructure at short notice and invest in the future when the
LSC will be in a position to "pull the plug" on a couple
of months notice. There is also a real concern that "further
down the road" the government will not be prepared to abide
by "market rates" and will simply "move the goalposts"
by re-fixing rates to their satisfaction.
16. There needs to be a really serious acceptance
of the need for money to be spent on training and developing the
next generation of criminal lawyers through targeted use of training
support grants and the like since the Carter and LSC papers are
completely silent on this issue.
17. Whilst there is a need to move swiftly
to prevent further fragmentation there seems to be a real need
to look once again at the figures proposed for year one and two
to ensure that these do not represent real and substantial cuts
to firms such as those within the Association who represent the
type of firms that the Commission and the DCA should be encouraging.
October 2006
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