the public sector is under huge financial constraints — it has to make cuts and savings in every department. Soon, the public sector will not be able to afford private sector legal advice, or even sustain its in-house teams. We want to step into that gap, and fill that legal need at a lower cost.
Kent Legal Services (KLS) is the in-house legal department of Kent County, one of the largest municipal authorities in England.
In 2000, I decided to completely transform how public sector legal services in Kent Council were designed and delivered. I felt that public sector lawyers had it too easy: The fact that they were supplied with both guaranteed work and money without having to search for them bred complacency and poor client service. I wanted to make my in-house lawyers as keen, as hungry, as customer-savvy and as value-aware as their private sector counterparts. That meant turning the whole basis upon which the in-house legal team was funded and structured on its head, by introducing private sector principles and practices whilst still operating from within the heart of the public sector.
I changed this by saying ‘take our budget away, take our funding away, take your guaranteed work away. In the future, we have to earn our income, we have to pay our own expenses (including our own rent) and we have to earn the right to do your work.’ So our clients can go elsewhere if they want to, and they can choose to use us if they want to. If they do choose to use us, then they have to pay for that. And they pay for it at a price that reflects the true cost. In return, the lawyers have to give a first-class service. If they don’t, the work will go elsewhere, and the lawyers will be out of a job.
Today, our lawyers are set income targets, and they have to earn that by whatever means possible. Some pricing is still by the hour, but increasingly we are using fixed, capped and value pricing because that is what our clients are demanding and what our private sector competitors are offering.
We haven’t been able to compete with private law firms as regards around the clock service — we have had to abide by public sector contracts and pay public sector wages, and so most of our lawyers work 9 to 5. But we compensate for that by offering additional value in other areas — for example, by our political and cultural awareness. Also, because our overhead is so much lower than a law firm’s, we are able to offer much lower prices, usually a third of the private sector. Our overhead is so much lower because we don’t have fancy offices, and we don’t have highly-paid partners who take all the profits out each year. Finally, we have automated certain tasks and we push work down to the lowest possible level.
Using this in-house trading model, we now offer services not only to Kent County, but to over 600 other public sector bodies nationwide. We’ve grown from 25 lawyers in 2000 to 125 lawyers today. Against an annual turnover of about £11 million, we have generated a profit of £2.5 million — real income, real profit, not just recycling inside Kent County.
I’m not aware of any other public sector bodies that operate the way we do. This has given us a first-mover advantage: we’ve been able to make a lot of progress without much competition from other public sector legal services. But that is changing as clients evolve, the economy changes and new players enter the legal market.
Today we are looking to go even further. We are going to set up a wholly-owned ABS, in the form of a limited company. The sole shareholder will be Kent County Council.
In creating our ABS, we will invest heavily. The investment will be in the form of a loan from the Council on a commercial basis, which the ABS will be expected to repay over the course of time. The investment will be used primarily in IT, in new premises and in acquiring specialist skills and expertise in business finance and business development. Those are two areas where today we do not have in-house skills or expertise, but that we know will significantly enhance our offering.
Our services will be structured around very sophisticated IT, with the goal of making the client experience very easy. They will have full digital service, so that wherever they are in the world, at any time of the day or night, they can have access to their lawyers, case files and accounts (for bill payment, for example), in a manner comparable to First Direct Bank (which revolutionized the banking world).
Our IT system will also make our lawyers’ experience better. This will mean stripping out from what the lawyers do everything other than legal work, and notably stripping out their administrative work. We will do this via rigorous process mapping with our IT partner, in order to mold the system to the lawyer rather than having the lawyer mold her or himself to the system. Through a combination of having lawyers do only legal work, and having an IT system to support other work, we can reduce our base costs. Lowering our costs obviously will make us more competitive. It also will allow us to make a bigger impact in our market, and to offer our shareholder a bigger return at the end of the day.
The creation of this ABS will require an additional cultural change on the part of our staff. They will have to transition away from working in a public sector to working in a private sector, highly competitive environment.
The new business will provide services primarily for the public sector, which is where our strengths lie (that being said, if any commercial organization seeks our services, we will not turn them away). Today in the UK, the public sector market is valued at about £3.2 billion. This comprises central governments and their ancillary (non-departmental) bodies, local governments and all its tiers (large city councils, metropolitans, counties, districts, parish councils), the blue light services (fire, ambulance, police), the health sector and the education sector (schools, academies, colleges and universities).
The range of the public sector is very large. At the same time, it is a sector that is not particularly well-served by the private sector, which tends to concentrate on commercial clients. For that reason, we see our ABS as an opportunity to make a big impact in a sector that suits our specific skills sets.
The services that we will provide will be the full range that a private sector firm would provide, plus. That is, we will provide services in the mainstream areas of property, commercial and contracts, planning, and employment. We’ll also offer services areas that are niche to the public sector, such as adult social welfare, child protection, highways, asylum, mental health, public sector housing, specialist police and fire, etc.
Our biggest competitors will be the in-house lawyers that our targeted public sector clients currently employ. Many of the public sector bodies I’ve mentioned have in-house lawyers. But they provide services to their employers today at varying levels of quality and cost efficiency. Our competitors will also include the handful of private sector law firms in the UK that specialize in public sector work, as well as the wider range of private sector law firms that offer mainstream services.
In creating our ABS, we will look to preserve the best of what we have developed over the past 15 years, namely a high-quality skill set, established market reputation, a public sector ethos and a low cost base. What we believe will sell is high quality at a low cost. In our opinion, in the public sector there is a large amount of unmet legal need (as yet unquantified). At the same time, the public sector is under huge financial constraints — it has to make cuts and savings in every department. Soon, the public sector will not be able to afford private sector legal advice, or even sustain its in-house teams. We want to step into that gap, and fill that legal need at a lower cost. At the same time, we want to be able to assure our clients that the quality of our services as well as its speed and reliability will not only be high, but in all likelihood better than what they are used to from private sector law firms.
As regards the IT that we plan to develop: there exists today many systems – case management, legal finance,… These systems provide a certain level of automation and standardization, but they don’t go far enough. As result, you still get lawyers doing work that could instead be done by a paralegal or indeed not by a human at all. The system that we will develop will avoid human intervention wherever possible. In addition, it will push back down to the client a lot of responsibility for the process that would otherwise be done by the lawyer.
Indeed, if you look at other sectors, such as online shopping, accounting and banking, we the customer are responsible for filling out all the forms (names, contact details, payment information, etc.). Generally speaking, we have developed a comfort with this way of working, and even a preference for it. Yet, in the legal world, we have not yet woken up to this way of working. We can develop a system that enables the client to do a lot of work themselves, such as using their own devices to input data through a client portal. This system can then do a number of things automatically, such as collate the data the client has input, acknowledge communications from the client, generate responses, forms, letters, reminders, process payments, etc.
Our process mapping exercise will look in detail at what each one of us on our legal team does every day. We’ll work out how much time is spent on each activity, and how much could be saved if that activity was no longer done by a lawyer or by a human or at all. In this way, we will strip out the waste in our processes. The end result is that lawyers will be involved only when they need to be involved.
This does sound somewhat mechanical and robotic and we will need to preserve the human relationship that is so crucial to a lawyer’s work. So, we will maintain personal contact. For example, named people will always be on hand to answer the phone and emails and to be available for face-to-face communication, whether by skype or in-person. We’ll have the right blend of human interaction with speed and efficiency of automation.
This is a tall order, we know. Today no such system, in the totality that I have described, exists. So, we will work with an IT provider to develop this system. Without such a system, I don’t see how our ABS can succeed as we’ll be lost in a sea of otherwise similar organizations.
The reason that we need to acquire an ABS license is that it will be the only way that we will be able to serve the wider market that we need to target in order to generate the income and the profits that will make this company successful. The current SRA rules are becoming more and more restrictive on the ability of in-house lawyers to be able to serve clients other than their direct employer, and these restrictions are applied in a particularly stringent manner to local government in-house lawyers. Further, a number of public sector bodies are outsourcing a significant amount of non-legal services which were previously undertaken in-house. Once that outsourcing occurs, that body’s in-house lawyers can no longer provide legal support to those services, for the reason that they are no longer performed internally. This means that for in-house legal teams, their range of clients and available work is narrowing. In order to reach a wider market, an ABS license is necessary.
We are constantly challenged, and we constantly challenge ourselves, on why we are doing all this. Why can’t we remain a traditional in-house team doing the Council’s in-house legal work? This is the model for most public sector in-house legal departments — why are we looking to be different?
The principal response to this question is cost. Lawyers are expensive. If all we were was an in-house legal team, we would be a cost burden. We would cost the Council something in the region of £5 million per year. At the moment, as mentioned earlier, we are not a cost burden, we are an income generator — a profit center — not only covering our costs but generating a healthy surplus each year.
Given the regulatory and other changes that I have just described, if we do not continue to evolve, we may very well cease to be an income generator, and go back to being a cost burden. On the other hand, by evolving, we can become an income maximizer. That is, we can multiply the income that we are currently generating, and in that way evolve from not only being an income generator but also becoming an appreciating capital asset. That is (and assuming we are successful), by establishing our ABS, not only will we continue to generate an income, but also at the end of — say, ten years — we will have a capital value. Depending upon our performance, we estimate that this will be between £40-£60 million. This is an asset that the Council will have and will be able to do with as it pleases — it can sell it in part or in whole, it can raise money against it. It is something of value that the Council would have never had if we had remained an in-house legal team operating as a cost burden.
There are a few other local council in-house departments in England that have also set up ABSs. Their structures differ from the one that we envisage in certain fundamental ways, and in particular they assume much less risk. Notably, they have bolted their ABSs onto their in-house legal teams, to serve merely as delivery vehicles. The ABS is not an entirely free-standing operation in its own right, and notably it does not have its own assets or employees. Instead, all the employees remain employees of the local council. The existence of the ABS structure on the side simply allows the in-house department to use its employees as and when required in order to take on work for others outside that council. It is a way for these in-house departments to preserve their current positions in the face of a changing regulatory environment. Unlike us, they are not looking to survive as a trading entity in the wider market. As a result, the range and capacity of their work is more limited than ours will be, as is the non-legal expertise (such as IT, finance and business development) that they are able to bring on board.
As I mentioned earlier, until now, we have required our lawyers to turn their hands at marketing, at sales, at business development, as an add-on to their day job. They have not been trained in those areas, although some have done remarkably well regardless. While this has been successful for us until now, it is no basis for entering a competitive, cut throat market. We can’t ask our lawyers to craft the ideal pitch, to draft the ideal tender submission, to scour the market on a daily basis for opportunities, to go out and cultivate connections and contacts, to prepare the business for growth. We need people who are trained professionals in these areas in order to assure those endeavors are successful. At the same time, in employing trained professionals for those purposes, our lawyers will be freed up to focus on the work they have been trained to do.
The culture shift involved in transferring our lawyers from an in-house public sector environment to a private sector environment will be one of our greatest challenges. We’ll need to help them to develop the skills they need to survive and flourish. Even for me — I’ve worked in the public sector all my working life — this will be new and different. We can’t expect to take our old skill sets and apply them in the new world. We’ll need to address some of our habits and ways of working that have developed over the years and that are well-suited to an in-house environment, but will no longer be practical or relevant in our new world. It will be a huge challenge, and we have to get that part right.
I’ve spoken with my counterparts with local government authorities all around the world who face the same dilemma as us: how to afford to provide quality legal services to their public sector bodies. They are all struggling with the same issues — how to do more with less and how to demonstrate added value. For example, in the US and Canada, the in-house legal departments in the public sector are generally quite small, with a lot work being done by external private sector firms. Those firms do that work to greater and lesser degrees of efficiency, effectiveness and quality. In those two countries, my counterparts are still waking up to the idea that it is possible to provide high quality legal services to the public sector without paying top dollar for it. The ABS structure that is available to us in England is not a panacea. It is not going to solve all of our problems. But we can make it work to solve some of our problems and — importantly — it allows us to be in control of our own destiny.
The delivery of legal services in the public sector is a universal concept. I am not talking about the application of laws specific to a given jurisdiction — I can only speak about the laws of England. What I am talking about is the principles of how we can deliver legal services to the public sector in the most efficient and effective manner. The concepts are the same regardless of the jurisdiction.
Looking beyond the public sector to the practice of law more generally: how we serve our clients is universal, and there are more commonalities than there are differences. Many things are happening in England in both the public and private sectors that could easily transfer to the US and Canada. There are universal principles at play in both sectors that transcend jurisdictions and regimes. So many people are put off of seeking legal services because they see them as inaccessible and incomprehensible to the average person. As a result, many people (and this includes many in the public sector) would rather solve their own legal problems by using Google in a haphazard and dangerous way. Why as lawyers do we allow that to happen? Why aren’t we putting ourselves in a position to be able to deliver legal services in the way that these people need them to be delivered?
This is a very exciting time. While I don’t yet know what the outcome will be, I see the potential of what can be. You have to open your mind to the art of the possible. Sometimes the only restrictions are in your head.
To download a pdf of this and the other stories, please click below.