The Legal Services Regulation Bill was introduced in October 2011 by Alan Shatter, a draft which has received objections from the Bar Council & Law Society, but is now likely to finally be enacted by Christmas.
The Irish Government spends some €0.5 billion annually on legal services, the majority of which has not previously been put out to competitive tender. There is a strongly held view, going back to the Competition Authority’s 2006 report, that lack of competition in this sector means that the cost of legal services in Ireland is amongst the highest in the developed world. Many contracts are allocated on the basis of administrative convenience, where the incumbent provider of such services is familiar with the needs of the public body.
In 2011, the troika requested that a Legal Services Regulation Bill be put in place - increasing the transparency around legal fees with the aim of eliminating barriers and improving buyer understanding of what is being paid for and if it represents good value. But are the changes made to the Legal Services Bill going to meaningfully reduce the cost of legal services? Legal services lobbyists have been able to convince the government to row back on some of the financial elements of the bill that would have impacted them unfavourably.
The OGP and the new frameworks
The Office of Government Procurement is at the forefront of building frameworks for the purchasing of goods and services for government bodies, and the legal sector is in their cross-hairs. In briefing sessions held earlier this year, prior to establishing up to eight separate Legal Frameworks to provide goods and services to various government bodies, it was mooted that future procurement of legal services would acknowledge different tiers of legal service complexity. This would allow the larger, more diverse firms to deal with the most complex issues, while smaller firms - which account for the vast majority of practices - would benefit from simpler tender processes for less complex issues.
These Frameworks are now being rolled out (the first one was for Local Authorities and the most recent one for Legal Services to Public Sector Bodies (excluding Central Government Departments)).
Advantages and disadvantages
The tender to establish a number of multi-supplier Framework Agreements to provide Legal Services to Local Government sees local authorities divided into regions - the theory being that there would be nine firms to take charge of the northwest region of Sligo and Mayo, 10 in Cork and another 10 in Dublin. But in reality a large Dublin firm isn’t excluded from competing for opportunities in Sligo or Cork; so there’s no particular advantage to a firm in Sligo being locally situated, and smaller firms are also less likely to be successful in their attempt to bid for the tender as they have fewer resources to invest in competing. The upshot is that smaller firms, particularly those that don’t form consortiums, are going to be squeezed out of he public procurement scene.
A major flaw in the public procurement contracts are structured lies in the way it has tiered services based on their complexity. While this would appear to be a logical way to structure the services supplied, there is no qualitative mechanism within the tender to evaluate this complexity. There is a real danger that tender submissions will be evaluated subjectively, particularly if there is an intention of ensuring firms of varying size are represented on the frameworks.
The costs of bidding
Over 100 suppliers can be selected to each of these frameworks, although in reality the figure will be lower. Tenders of this scale are likely to attract several hundred bidders. With the average cost of responding to a tender at around €5,000, up to €10Million is likely to be spent by law around the country – competing for contracts where it is not clear that the selection criteria is sufficiently robust and quantitative.
One major feature of the new Legal Services Bill is that it provides limited type company structures for law firms. In the past, the unlimited liability that legal firms were subject to was a major obstacle to collaboration amongst smaller firms. With frameworks like this now becoming the norm, smaller firms will have to collaborate more and re-invent the way they work using the new provisions put in place. Even the largest Irish firms are small by international standards, and if they are going to compete on a larger scale and compete internationally, then it would be in their best interests to build relationships with other firms.
The challenge for smaller firms
A great deal of money is going to be spent competing for tenders which are likely to be evaluated subjectively, and to the detriment of both smaller suppliers and the diversity of service delivery within public procurement.
This is a wake-up call for smaller legal firms to take advantage of the Legal Services Bill and to start building consortia and new legal company structures, painful as that may be. Unfortunately, this raft of frameworks is coming at the same time as the Legal Services Bill. If these companies can survive - and dedicate the next four years to developing such structures - then they will be in a far better position to compete in 2020.