To in-house or out-house? Part one Assessing how best to manage your organisation’s legal work

In the first part of a two-part series, Vlad Valiente, a solicitor at Midlothian Council, explains how the organisation weighed up the potential pros and cons of bringing more legal work back in-house.

When I arrived at Midlothian Council in January 2013 we had 2.89 'full time equivalent' (FTE) solicitors (including me) and one paralegal. Fast forward four years, we have eight solicitors (seven FTE) and three paralegals and provide the vast majority of legal services in-house. In this blog I aim to describe the journey of significant structural change along with the lessons learned.

Old structure concerns

The previous legal services model had been in place since 1996 (Local Government re-organisation) and included outsourcing the court work. In 2006 the in-house solicitors totalled 4.1 FTE. The 'externalising' model was thereafter maintained by the previous management team and the in-house capacity had gradually reduced as solicitors left and were not replaced. This had further favoured the ‘externalising’ of work and resulted in an all time low figure of 1.89 FTE in-house solicitors in 2012.

As can be expected with such a skeletal in-house legal resource, the in-house lawyers had very little capacity. We could therefore only concentrate on selected areas of work (including governance) and managing the relationship with external solicitors (by procuring, instructing and overseeing their work). In some areas, due to the lack of internal resource, Council colleagues instructed external solicitors direct. This resulted in a lack of control, a lack of quality assurance of instructions and unnecessary expenses. This was of course frustrating for the in-house lawyers as they could not dedicate more time to dealing with the Council’s legal work.  

My legal colleagues questioned the long term viability and cost effectiveness of this model but previous management was risk averse in favour of maintaining the status quo. My colleagues did however manage to put forward a case for recruitment of another solicitor which resulted in my appointment in 2013. Having come from a different culture of legal services provision, I had the same concerns as my colleagues. Was this model achieving 'best value' for the Council? Local authorities’ best value duties include securing continuous improvement in performance whilst maintaining an appropriate balance between quality and cost.

There was no doubt that we had achieved best value in terms of procuring external legal services but this had not been compared with the possibility providing the same service in-house. The legal team was in complete agreement that the question around the balance between in-house and external legal provision had to be asked and addressed.

The perfect storm

Having identified the concerns, we set about creating a legal services working group to further investigate and assess the position. This coincided with a management and departmental restructure, a delivering excellence Council agenda and the establishment of the Finance and 'Integrated Services Support Board' (ISS Board). The group pursued the following actions:

1. Senior management consultation and endorsement (including Heads of Services, Directors, Chief Executive, ISS Board) - seeking their views and support on the proposal to carry out the best value assessment. This was a crucial step as it allowed for ongoing senior level support in terms of what we were trying to assess and achieve;
2. Benchmarking exercise - comparison with similar sized local authorities in terms of in-house staffing numbers, staffing costs and external legal costs;
3.  Internal assessment of what in-house capacity could deliver - in particular, what work could be brought back in-house and what work was deemed due to specialism to be best placed with externals;
4. Internal assessment of added value which in-house provision could bring in comparison with current external added value;
5. Client department consultation - seeking views on the legal service they were currently receiving, what could be done better, what needs were not being met and what they would like moving forward;
6. Involving the Council’s business transformation team -  to assist us and guide us through this process; and
7. Involving the Council’s human resources  team - to seek their views and discuss employment issues.
   
   

Results of assessment

The best value assessment concluded that there was no doubt that our external providers were providing excellent value for money, however there was significant scope for savings and additional added value if the majority of the work could be brought back in-house.  The comparison with other local authorities indicated that the Council was out of step in terms of the in-house v external balance. There was a consensus that an in-house team could provide the same service for less. The added value of having this in-house resource for the Council included:

• Ability for the legal in-house team to be much more involved in the Council’s prevention objectives. This would allow for earlier intervention and involvement of legal services resulting in:
  • Significant increase in the delivery of training and development for client departments;
  • More guidance documents to assist client departments;
  • Considerably more input into Council policies and procedure;
  • Much earlier legal advice on individual cases, reducing the risks of challenge and increasing the chances of a better outcome;
  • Increase in the ability for ongoing legal support to long term Council projects;
  • Increase in capacity to generate income by charging fees for commercial work;
  • Retaining legal knowledge and experience gained as a result of carrying out more areas of work in-house (e.g. court experience, contract and planning work, etc). This resource is therefore not lost as and when contract with external providers expires; and
  • Significant increase in capacity to identify and address areas which require legal input and pre-empt legislative change. The consultation with client departments highlighted that there was a noteworthy level of unmet legal need which could be tackled with an increase of in-house capacity.
    
    
• No clock watching (and therefore per hour cost consideration) when seeking legal advice. Client departments could be assured that they could come to in-house team without the potential barrier of external costs; and
  
  
• Better and closer working relations with client departments and senior management leading to better legal outcomes.  
  
  

Decision making - where next?

These best value conclusions were reported to senior management who took the decision, in line with our proposals, to address the in-house v external balance by restructuring legal services. There was recognition from all concerned that the Council will always require external providers but that these should be focused towards areas of specialism in which there was a lack of in-house knowledge or experience.