With the axe now falling on public sector funding, local authority legal teams are increasingly coming together to share services. Alex Aldridge charts the rise of the combined 'super panel' and asks how far the trend can go

With Chancellor George Osborne last week announcing dramatic spending cuts over the current Parliament, there can be little doubt that public sector workers are gearing up for tougher times. But lawyers, at least, can claim to have made some pre-emptive moves to address the expected age of austerity.

One response has been the trend of individual local authorities coming together to share services. This has been extended to buying legal services through the recent series of combined panels – effectively cross-authority panels that allow groups of local bodies to pool their buying power and cut administration.

The highest profile of these 'super panels' is run by Birmingham City Council (BCC). It was initiated in its present form earlier this year following a tender process that began in 2008. The panel, which will generate legal work worth in the region of £5m-£6m annually during its four-year lifespan, is open not only to the 17 West Midlands local authorities involved in the tendering, but to the UK's nearly 500 other local authorities. Eversheds, Shoosmiths, Walker Morris, Pinsent Masons and Wragge & Co are among the firms appointed to the panel.

Other prominent combined panels – which, unlike the Birmingham arrangement, are not made generally available to other authorities not in the consortium – include the London Boroughs Legal Alliance (LBLA), formed last October to service six London boroughs; the Tyne & Wear legal panel, formed in January to service five northeast local authorities; the North West Legal Consortium, formed in March to service 25 councils; the East Midlands (EM) LawShare, formed in its current guise in April to service 42 local authorities; and the southeast boroughs consortium, formed last month to service a collection of outer London and Kent boroughs.

The logic behind such moves is obvious. "Alone, councils have a modest legal spend," says Mark Bowen, head of legal at Bromley Council, one of eight outer London boroughs in the southeast boroughs consortium, alongside five in Kent, as well as the City of London. "But when they come together they create something worth bidding for, which inevitably drives down costs." More than 80 law firms competed for places on the southeast boroughs consortium panel, with Wragges, Pinsents, DLA Piper, Trowers & Hamlins and Dickinson Dees among the 20 successful applicants.

Judith Barnes, a projects partner at Eversheds – which, alongside winning a place on the BCC panel has secured positions on the LBLA and the combined Tyne & Wear panels – sums up the importance of winning a place on these panels: "There's no doubt they are potentially very lucrative places to be."

Wragges employment partner Mark Greenburgh expresses a similar sentiment: "We've already had strong credentials in the public sector, but being part of super panels such as BCC and LBLA has enabled us to really grow our revenues."

Public sector work now accounts for 16% of Wragges' UK revenue – and revenues in the group have increased by 10% against last year. The figures at Pinsents are similar, with revenue from local authority work increasing by 17% last year and 20% in 2008. In the context of dramatically reduced corporate revenues in the wake of the banking crisis and related recession, this local authority work is more important than ever to these firms.

And in-house lawyers in the public sector are very aware of this fact, with BCC corporate director of governance Mirza Ahmad emphasising the "good opportunities for shrewd local authorities to optimise the market".

It is no surprise, then, that firms are offering lower rates alongside a number of added extras to secure roles on such combined panels. "Rates, which have dropped in this area by between 10% and 20%, are obviously the deal clincher," continues Barnes. "But offering added value through, for example, training arrangements or knowledge management assistance can help differentiate firms."

"Cost is a big driver," says Hugh Peart, director of legal and governance services at Harrow council, part of the LBLA, "but we've also placed a major emphasis on skills transfer. Previously, we'd go to a panel firm with a piece of work and several months later get a bill. Now, we're increasingly having their lawyers come in to show our lawyers how to do, say, a compulsory purchase order, so in the future our lawyers can handle that sort of thing themselves."

Not always super

While the super panels offer mutual benefits to cash-strapped local authorities and law firms struggling with weaker pipelines from commercial clients, they are not without their down sides. Given their size and the typically heavy involvement of external procurement professionals in the highly-structured tendering process, they are not great for fostering close individual relationships between in-house counsel and private practice lawyers.

This in turn limits the use of alternative billing arrangements and value-add offerings, say lawyers. The BCC panel in particular is singled out for criticism in this respect, with its availability to all of the country's local authorities making it, in the words of one private practice lawyer, "more like a kind of yellow pages than a panel".

The slightly bizarre results that can come about through procurement processes often dominated by non-lawyers are also of some concern. One private practice lawyer specialising in this area told Legal Week that there was "a tendency to package things together that you wouldn't necessarily expect to see together", giving the example of routine work bundled up with specialist corporate governance matters during a tender – with law firms expected to bill at the same standard hourly rate for both.

He added that procurement professionals often "lean heavily on evaluation criteria that aren't necessarily the things in-house lawyers would value in the people they work with".

In some cases, once a panel is put in place, in-house legal teams are forced to go through a very prescriptive process designed by procurement teams – a system which grates with some lawyers on both sides of the fence. Another private practice lawyer comments: "Sometimes it's a case of going through the motions of selecting a law firm for a particular job. If I see a piece of work advertised, I don't tend to bother bidding. If, on the other hand, I get a tip-off, I think 'they want me to bid'."

Super super panels

Despite the problems that super panels can throw up, there is a consensus that they basically deliver. Hence the fact that there are more in the pipeline: a combined southwest Wales panel tender is planned for the summer, while seven councils in Cambridgeshire are also looking at forming a joint consortium of external legal advisers.

And the message from both in-house and private practice lawyers in this area is to expect more consolidation. What form this consolidation takes is more of a moot point, though. Some suggest that when the current group of super panels come up for re-tendering in the next three to five years there will be a further round of consolidation – with, for example, the two London super panels perhaps becoming one.

Bromley Council's Bowen comments: "We've moved from individual local authority panels to consortia in the space of a few years, so why not larger consortia? Of course, there is the risk that they will become unwieldy, but there would be benefits, too, and it may make sense in the context of the financial pressures."

Another option is for local authorities to team up with an individual law firm to drive down costs further. BCC's Ahmad cites Berwin Leighton Paisner's (BLP) recent tie up with Thames Water – which saw the utility transfer the bulk of its in-house legal team to the City firm, from where they will carry out all Thames' legal work as BLP employees – as a possible route that local authorities could take. "A joint venture of this nature with a law firm would put the local authority experience and commercial expertise in one place and save money as a result of the reduction you'd get from having one firm do all the work," he says.

Perhaps the future of local authority panels won't involve law firms at all. If the Legal Services Act is fully implemented next year – enabling the provision of legal services by organisations led by non-lawyers – there is a possibility of outsourcing providers like Capita, which already services public sector clients in a number of other areas, moving into the legal services market. "Extending into legal wouldn't be easy, but strategic partnerships of this nature for the more commoditised legal tasks could be something we see in the future," says Eversheds' Barnes.

However the trend develops, with public spending facing a severe squeeze over the next five years local authority lawyers expect super panels to be only one of many innovations they will have to get used to.