Best Value Tendering of Criminal Defence Services

A Consultation Paper

Response from:

Criminal Law Solicitors’ Association

Suite 2 Level 6

New England House

New England Street

Brighton, BN1 4GH

DX 2740 Brighton

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Tel: 01273 676725

THE CRIMINAL LAW SOLICITORS ASSOCIATION RESPONSE TO THE LEGAL SERVICE COMMISSIONS CONSULTATION ON BEST VALUE TENDERING OF CRIMINAL DEFENCE SERVICES.

Executive Summary

  1. The CLSA rejects the proposed introduction of Best Value Tendering (BVT)
  2. Our legal aid system has served this country well since the 1940’s following the publication of the William Beveridge’s 1942 report ‘Social Insurance and Allied Services’. The importance of access to justice and the right to legal representation was recognised by the Rushcliffe Committee in 1945. Its recommendations led to the setting up of the first legal aid scheme in 1949. The current proposals under consultation will not permit a viable legal aid system to survive and is therefore in this associations view directly opposed to the public interest.
  3. The consultation document (at Para 1.6) purports, as part of a two stage process’ to ‘seek views on the principleof BVT’. This association intends to respond to that invitation as if it were a genuine invitation made in good faith by setting out its views on the principle.
  4. The Association believes that BVT cannot work in the setting of criminal defence services for the following reasons:
  • The success of BVT is predicated on volume; the LSC can neither guarantee nor deliver the necessary volume
  • In order to be successful firms will necessarily have to bid low, even at non profitable levels, which will have an adverse effect on quality
  • There is no market stability. Businesses cannot constantly control supply or predict demand. Neither the LSC nor practitioners are in control of the many external cost drivers within the criminal justice system that would have to be factored in to a realistic bid
  • Those firms who do not succeed in the first round of tendering will be lost forever and thus the already fragile supplier base will be irrevocably damaged, in conflict with the LSC’s obligation to ensure adequate provision.
  • The LSC’s poor change management history gives theprofession no confidence in the ability of the LSC to manage the process
  • BVT favours fewer and larger suppliers which militates against access to justice, particularly in rural areas

The principle of Best Value Tendering

The foreword to the consultation states ‘put simply, our aim is to create a sustainable legal aid system, with quality, access and value for money at its heart.’[1] The Association’s view is that the BVT proposals will lead to the legal aid system becoming unsustainable, lacking quality, reducing access and producing poor value for money.

LSC aim: ‘Sustainable legal aid system’

  1. The LECG report 13th July 2006[2] raised the following issues:

‘The first issue is the extent to which competition between firms can be relied on to reveal firms’ true costs and reduce prices. Firms will have incentives to bring down costs with fixed prices. With price tendering they may lower costs further and pass part of the reductions on as lower prices to gain market share. A problem is that the proposals may create larger firms with local market power, with some control to raise prices, or resist further falls, to ensure above-normal profits. The concentration of market power in the few may arise because a firm that has failed to achieve a contract in the first round may find it hard to bid next time – it will have lost its fee earners and will need to compete with firms that have been working in the market since the last round. Although there may be competition initially it may gradually fall away’.

The CLSA has no doubt that those who do not succeed in the first round will leave the ‘market’ forever. Specialist firms will sit around and hope for better times. The currently available but shrinking pool of lawyers able to do this work will not return.

LECG go on to warn ‘ A second issue is the role of the government as sole purchaser of CDS services. Markets have two sides, buyers and sellers. In this case the government is a monopolist purchaser supplied by several solicitor firms in each area. Although the proposals intend that markets set prices, for the reasons above they may be at levels higher than their potential. The temptation for the government if it does not like market prices may be to continue to administer prices. Firms, however large, may have little choice but to accept these. Alternatively contracts may find no takers. In that case the system may not be much further along than at present, in terms of ensuring firms a fair return and the government a sustainable high quality service’.

A ‘faux market’ will be created. When only one party controls the price ceiling there is a fixed and bogus market and therefore not a genuine market at all.

  1. In the report which took so long to be published, even during the Select Committee’s enquiry, the LSC’s own experts, Otterburn Legal Consultingsay:

‘The financial position of many criminal suppliers is highly fragile. Some firms are financially strong; however these are very much in the minority. Lord Carter’s report proposes a relatively swift timetable towards best value tendering and a relatively brief transition during which firms are expected to achieve substantial change. It is assumed firms will adapt and change quite quickly and there is little allowance or leeway built into the timetable to allow for unknown or unforeseen difficulty. It is proposed that fees will be cut before firms have a chance to increase their efficiency through re-structuring; indeed it is likely thatmany firms will see their cost base (overheads) increase during the transition rather than decrease. This high level of uncertainty combined with a lack of reliable data would suggest the LSC should proceed with caution. If possible, proposed cuts in fees should be delayed and the transition extended. Contingency plans should be drawn up should local supply difficulties occur and the LSC have to intervene. ‘

The impact of the introduction of fixed fees with arbitrary reductions in the level of paymentin the urban areas combined with a dramatic fall in volume of criminal work undermines the basis upon which the Carter reforms were predicated.

The Otterburn report continues:

‘It is very difficult to quantify the potential impact on the supplier base, however the available data would suggest that many firms are on the verge of financial difficulty, or are already in some difficulty. There is a real danger that the LSC may lose the confidence of the supplier base, and perhaps more importantly their banks. The closure of firms or departments does not necessarily reduce supply in the long term, however in the short term it makes the transition very much more difficult. Some of the firms that may be most affected are the mid sized firms that are key to the effective operation of the system long term.

The projections contained in this report suggest the difficulties facing firms will become critical if cuts in fees are introduced from April 2007. It will take some time for the impact of these to work through; however, combined with recent changes such as Means Testing and Fixed Penalties, the cumulative effect could drive a number of firms out of business.’

This is what the Select committee said once the existence of the report became known:

‘While we accept the apology by the Lord Chancellor for what looked like an attempt by his Department and the LSC to suppress an important piece of research relating to the speed of the current reforms, we remain profoundly troubled by the handling of the Otterburn issue on the part of the LSC.It suggests an inability on the part of the LSC to address fairly and openly a critical aspect of the reforms: the ability of the supplier-base to survive the reform proposals’.[3]

The Associationis very aware of the real financial distress currently felt by the profession. Leaving aside the principle of BVT, the time tabling and scheduling of the ‘reforms’ has been hurried and inconsistent, there have no pilots or testing of change. There have been very serious management issues which have not been adequately addressed and key IT changes have failed. The profession is in no fit state to absorb any further massive changes at present and in the Association’s view the LSC has not demonstrated that it is adequately equipped to manage such change in any event.

  1. The Law Society, although originally seeing some merit in the proposed reforms, had major reservations and stated in its response to The LSC consultation on the Carter Report:[4]

‘It was acknowledged by the Carter Report that best value tendering would not necessarily work in all circumstances. The Society believes that best value tendering could work in large urban areas. It is unlikely to be appropriate in many smaller urban and rural areas. The timetable indicated for moving to best value tendering should therefore allow for the most careful evaluation of the conditions locally, and there should be no automatic assumption that best value tendering should go ahead.’

This association feels even if it be argued that is an oversupply in some urban areas there are far better ways to re-structure than to adopt wholesale a crude market mechanism that puts at risk the whole profession and access to justice.

No independent evidence has been produced to demonstrate that BVT is a viable option in the face of a great deal of evidence questioning the viability of such a reckless experiment.

  1. The third report of the House of Commons Constitutional Affairs Committee on the implementation of the Carter Review on Legal Aid had some important criticisms of the proposed BVT proposal. The report said:

[5]‘It is absolutely fundamental to Lord Carter's proposals for best value tendering that the market sets the price. It is crucial to the correct pricing of legal aid work and the sustainability of the system. The Lord Chancellor and the LSC indicated a strong belief that competitive tendering would not lead to an increase in fee levels. Where that is not the case there will be one or both of two responses:

  1. The market price will be treated as a cartel price and dealt with accordingly; and
  2. The market price will be accepted but cuts made elsewhere in legal services to offset the increase in the budget.

The first response betrays a lack of confidence in the LSC's ability to set up a system of tendering that is genuinely competitive. The second shows that a market-system that delivers any increases in price might not be sustainable. Either way, neither the LSC nor the DCA appear to have confidence in the central premise upon which the reforms are based.’

The CLSA agrees with the Select Committee that this proposal does not involve a genuine sustainable market.

  1. The Select Committee also expressed fears over what will happen after the first bid round[6]expressing their view thus:

‘Perhaps the greatest problem facing a system of competitive tendering is the development of the supplier base and the legal aid market after the first and subsequent bid rounds.’

Referring to what they called the 'winner's curse' and market stability they quote Professor Frank Stephen: [7]

"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 i.e. 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 CLSA predicts the following dichotomy. To be successful in bidding for a contract under BVT solicitors firms, many of whom only undertake that type of work and in one small geographic area, will have to bid low. When successful, they will inevitably find it difficult to maintain high quality standards as these are labour and managementintensive. If the practice does maintain the necessary quality required, the contract becomes commercially unviable.

We echo the fears of the select committee when they added:

‘Legal aid firms that miscalculate their bids and cannot fulfil the contracts may be forced to leave the local legal aid market, with unpredictable consequences for clients and local access, to publicly funded legal services. The same is true of providers who cannot deliver the legal services at the required quality level as a result of an unsustainably low bid’.

This is particularly so when considering external factors such as government policy which affects volume or external cost drivers.

The CLSA believes that this will lead to a fall in quality in due course as an inevitable result of fewer firms being available to compete in future bidding rounds. There is a limited and ageing population of solicitors qualified to undertake the work (fewer than 4% of the profession) and there is not an inexhaustible supply of legal aid firms. The few remaining firms in the future may be in a position to dictate the quality levels.

There will be no replacement firms. They will have ceased to exist and cannot be reconstructed over night. New entrants will not suddenly appear in the second round of bidding. When the profession shrinks to the extent that a handful of firms could refuse to work under artificially set ceilings all the risk will revert to the procurer.

Solicitors have no control over external cost drivers, which can be either national or local. In a real marketplace if economic conditions change a ‘supplier’ will, where possible, pass on unforeseen cost to the consumerand will wish to make provision for variation in a fixed term contract. With a monopoly control over the ‘market’ it is unlikely that government would permit the supplier to increase charges (costs) during the lifetime of the contract. Under pressure to bid low, the firms of solicitors affected by a change in local conditions such the closure or move of a local court or police station, will not be permitted to adjust charging rates to compensate them for any additional financial burden incurred.

The Select committee understood the point about external cost drivers. [8]. They said:

‘While the Government maintains that competitive tendering for legal aid contracts will lead to a fairer sharing of financial risk between providers and the LSC, we are concerned that it will be the legal aid providers who will carry the lion's share of the financial risk of inefficiencies in the justice system or significant legislative or policy changes leading to an increase in the workload per case. Even competitive tendering may not lead in all cases to an adequate allocation of financial risks through the pressure on legal aid providers to outbid one another.’

Professor Cape, in his evidence to the select committee, described proceeding with BVT without proper research as ‘reckless’ and ‘crazy’ The select committee concluded that:

“competitive tendering for legal aid contracts on the legal aid market and the availability and quality of publicly funded legal services, and bearing in mind the current fragility of the legal aid supplier base, it is imperative that the risks inherent in such a radical reform be minimised and the effects analysed on a limited geographical basis. Not to do so would be reckless’.[9]

The disastrous beginning of the Defence Solicitor Call Centre’ (DSCC) has been the subject of separate complaints. It is an example of what happens without proper research or piloting. It is regrettable that the comments of the Select Committee have not been heeded.

LSC aim: ‘quality’

  1. The LECG report expresses concerns on the issue of quality:[10]

‘Firms will have incentives to cut costs to win contracts and make profits and may do so by reducing quality. Because of the separation, (responsibility for quality assurance with the Law Society and Bar Council) value for money with the LSC), a possibility is that they may do so (reduce quality) until quality hits a lower threshold and the quality standard becomes a minimum standard rather than a value for money standard. However, there may be grades of quality defined (as in the peer review system) that can relate value to costs.’

Should peer review remain an active method by which quality is assessed, peer reviewers will either feel that they are treating firms harshly by holding them to an impossible quality standard, firms having bid at low prices to stay in existence, or, alternatively reviewers will acknowledge the distress of firms and allow quality standards to fall.