Evidence submitted by Frank H Stephen,
Professor of Regulation, School of Law, University of Manchester
(LAR 228)
IMPACT OF
FIXED PAYMENTS
FOR LEGAL
AID ON
SOLICITOR BEHAVIOUR
I have been invited to submit this memorandum
of evidence to the Select Committee on Constitutional Affairs
to aid it in its review of the Implementation of the Carter Review
of Legal Aid in England and Wales. It has been suggested that
research which I have carried out (with Cyrus Tata of Strathclyde
University) on the impact of the introduction of fixed payments
for certain categories of criminal legal aid services in Scotland
provides insights on the likely behaviour of solicitors in England
and Wales to the introduction of block contracts and fixed payment
for legal aid in that jurisdiction which may be of interest to
the Select Committee.
Before turning to a discussion of this research
I think it important to enter a number of caveats. All of the
research which I have carried out on legal aid has been exclusively
concerned with the legal aid system in Scotland. Members of the
Committee will appreciate that legal aid in Scotland is governed
by a separate set of regulations and administrative procedures
from those in England and Wales. It is administered by the Scottish
Legal Aid Board whose powers derive from separate legislation
from that of England & Wales and since devolution legislative
authority in this area lies with the Scottish Parliament. In addition,
it should be remembered that Scotland has its own distinctive
legal system and legal profession. Not only are there differences
in law from England and Wales but the differences extend to: the
court system; rules of criminal procedure; and the division between
the two branches of the legal profession. Scottish solicitors
have rights of audience before the courts that extend to a higher
echelon of the court system than do their English counterparts.
Consequently, the role of the bar (Faculty of Advocates) is less
in Scotland than in England and Wales. All of this implies that
one must be careful in drawing inferences about how reforms of
the legal aid system of England and Wales will operate from experience
north of the border. I would also like to make clear that the
interpretations of our research which I express here are my own
and are not necessarily shared by Cyrus Tata or those who commissioned
our research (Scottish Executive Justice Department).
As an economist one of my interests is the role
which incentives play in the legal system. In particular, I am
interested in how the legal profession responds to changes in
incentives. The change in the nature of payments made to solicitors
in Scotland introduced by the Criminal Legal Aid Fixed Payments
(Scotland) Regulations 1999 as amended by the Criminal Aid (Fixed
Payments) (Scotland) Amendment Regulations 2002 provide a natural
experiment to examine responses of lawyers to a change in incentives.
They were implemented from 1st April 1999. The proposals emanating
from the Carter Review for contracts for the supply of legal aid
services to be based on bids for blocks of cases is economically
equivalent to the supply of services on a fixed fee basis. Thus
the analysis of the Scottish switch to fixed payments for summary
criminal legal aid may provide relevant insights.
Two of the research projects which I have undertaken
are concerned with the issue of fixed payments. The first was
commissioned by the Law Society of Scotland during the period
of consultation prior to the introduction of the legislation.
It was an attempt to estimate the likely effects of fixed payments
being introduced at the rates proposed. This work was later published
as "Reform of Legal Aid in Scotland", Hume Papers
on Public Policy, Vol 8, No 3, 2001, pp 23-31. Inter alia,
simulations were carried out using unpublished official data on
payments of summary legal aid to solicitors to estimate the effect
of introducing fixed payments on solicitors carrying out different
amounts of summary legal aid work. The effects of introducing
fixed payments at both the, then, current average payment level
and at the proposed level were estimated. This was done in order
to distinguish between the effect of fixed payments per se
and the effects of reducing the average payment per case.
The estimated effects on the incomes of firms carrying out different
amounts of summary legal aid varied greatly. Solicitors doing
between 40 and 50 cases were subject to large variations on income
from summary legal aid over a five year simulation period whilst
those doing fewer than 10 cases were only subject to minor fluctuations
in income. Solicitors undertaking more than 400 cases per year
were subject to little variation in income from fixed fees per
se because their income per case was close to the average
income per case. However this group were hit the hardest by the
proposed reduction in the level of payments.
How suppliers would react to the introduction
of fixed payments, it was suggested, would depend on their underlying
motivations. If solicitors are motivated solely by the interests
of their clients it was predicted that in the long run those suppliers
who undertook a significant but small amount would move out of
this area of work leaving it to larger suppliers who would provide
a more routinised service. On the other hand, if the predominant
motivation of solicitors is their own financial well being they
would reduce their professional input to a level commensurate
with the level of remuneration allowing them to devote their time
to other more profitable areas of work or to increase the number
of summary cases which they undertook. In either of the latter
two cases the service provided to clients is likely to fall.
The implications of this work for the analysis
of the Carter proposals are two-fold. Since what is involved is
essentially a fixed price contract, a firm's costs will fluctuate
depending on the mix of straightforward and more complex cases
if a small number of cases is contracted for. Only when the number
of cases contracted for is sufficiently large to represent a random
sample of all cases will there tend to be a cancelling out of
simple and complex cases so that costs for the total number of
cases is commensurate with the payments received. Thus it is in
the interests of firms for the minimum contract size to be relatively
large[134].
However, a second effect of the proposed scheme is likely to produce
downward pressure on fees. To the extent that there is competitive
bidding for contracts bid prices are likely to be pushed down.
The literature on auctions and competitive bidding has identified
a phenomenon known as the winner's curse ie the party winning
an auction is likely to have overbid. This applies even to very
sophisticated bidders (cf. bidding for UK 3rd generation mobile
spectrum). The implication is that firms bidding for legal aid
contracts are likely to bid low. This will exacerbate the problem
of covering their costs. Thus the consequence is likely to be
a reduced level of service for clients.
The second project which I have undertaken (along
with Cyrus Tata) was commissioned by the Scottish Executive Justice
Department to examine the impact of the introduced of fixed payments
from 1999. A summary of the findings of this research is available
in Research Findings No 61/2006, Legal Studies Research Programme,
Scottish Executive. The impact of fixed payments on case management
is discussed in C Tata and F H Stephen, "`Swings and Roundabouts':
Do Changes to the Structure of Legal Aid Remuneration Make a Real
Difference to Criminal Case Management and Case Outcomes?",
[2006] Criminal Law Review, 722-741. The full Report on
this project is is awaiting publication by the Scottish Executive.
This project uses both statistical analyses
and interviews with defence lawyers and prosecutors to identify
changes in the number of legally aided summary cases, the trajectory
of cases through the court system, the incomes of firms from summary
legal aid and the way solicitors manage summary cases. It is argued
that these measurable changes are a consequence of changes in
the behaviour of defence solicitors arising from the introduction
of fixed payments. The use of a number of sources of evidence
allows evidence from each source to be triangulated by the evidence
from the other sources. We believe that the evidence from the
different sources is consistent. In particular the interviews
with solicitors and prosecutors confirm the inferences drawn from
two separate statistical analyses.
Certain characteristics of the Scottish legal
aid system provide a means for measuring changes in solicitor
behaviour. In particular, under the Scottish system criminal legal
aid is only accessed where a "not guilty" plea is tendered.
Accused persons pleading guilty are only entitled to Advice and
Assistance and ABWOR. If a reduction in average payment per case
(through the introduction of fixed payments) provides an incentive
for solicitors to take on more legally-aided cases this might
result in a higher proportion of accused persons pleading not
guilty, ceteris paribus. Under Scottish criminal procedure there
is no prior disclosure of Crown evidence in criminal trials. This
has resulted in the defence arranging to have precognitions taken
from Crown witnesses. Under the time-and-line system the cost
of taking precognitions was treated as an expense claimable from
the Legal Aid Board whilst under fixed payments such expenses
have to be covered from the fixed payment. Changes in the use
of precognitions would then be an indicator of the influence of
fixed payments on how cases are handled.
Our statistical analysis of data supplied by
the Crown Office on the proportion of cases terminating at each
of four key stages in the criminal prosecution process in summary
cases in all Sheriff Courts in Scotland suggested that the proportion
of cases terminating at the pleading diet (initial hearing) fell
after the introduction of fixed payments. This is consistent with
an increase in the proportion of not guilty pleas. However, there
was also an increase in the proportion of cases terminating at
the Intermediate Diet (pre-trial hearing) and on the day of the
trial without evidence being led. Consequently the proportion
of cases going to full trial fell. Thus although the proportion
of cases with a plea of not guilty rose (and thus the proportion
of accused eligible for summary legal aid) that plea was changed
to guilty before any trial could take place. Data supplied by
the Scottish Legal Aid Board on all legal aided summary cases
in the Sheriff Courts for two years prior to and three years after
the introduction of fixed payments revealed a consistent pattern
of an increase in the proportion of cases being legally aided
after the introduction of fixed payments. These two sets of data
suggest that the introduction of fixed payments (at a rate below
the previous average payment) resulted in more legally aided cases
being taken up by solicitors. Our interview data confirmed that
such behaviour was being observed by lawyers and prosecutors.
Further analysis of the legal aid data revealed
that firms which were heavily involved in summary legal aid work
had dramatically increased the number of cases which they undertook.
They also became more assiduous in claiming payments under Advice
and Assistance. As a consequence, by the third year after the
introduction of fixed payments the income of these firms from
Summary Criminal Legal Aid and Advice and Assistance was on average
above that prior to the introduction of fixed payments. All of
these data suggest that the introduction of fixed payments led
to specialist legal aid firms increasing the number of cases undertaken.
Surveys of defence lawyers and subsequent interviews
with them revealed a dramatic fall in the use of precognitions.
Interviews with lawyers and prosecutors also suggested a reduction
in the preparation of the defence. Again this is consistent with
defence lawyers reducing their input to cases following the reduction
in fee rates which accompanied the introduction of fixed payments.
The evidence we have assembled on the consequences
of the introduction of fixed payments in summary legal aid in
Scotland is consistent with defence lawyers reacting in an economically
rational manner to the reduced income per case which fixed fees
entailed. Those highly involved in summary legal aid work appear
to have reacted by reducing their professional input to cases
and producing a more routinised service. The particularities of
the Scottish Legal Aid system and Scottish criminal procedure
allowed us to pick up indicators of these changes in behaviour
which were confirmed in our interview data. I have no reason to
believe that the ethical constraints on English solicitors are
greater than those on Scottish solicitors. Consequently I would
expect that the introduction of bidding for contracts for blocks
of work (which is likely to result in a reduction in fees per
case) will result in a similar change in behaviour of English
legal aid specialists.
I would like to stress that none of the work
I have undertaken allows any inference to be drawn on whether
the work done by solicitors either before or after the introduction
of fixed fees in Scotland was adequate, excessive or inadequate.
All the research allows us to infer is that the level of lawyer
input into cases is likely to have reduced as a consequence of
fixed fees.
February 2007
134 This is in addition to any reduction in average
cost due to economies of scale. Back
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