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What does the next six months hold for the legal world?

24th Jun 2013
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There was a time when legal firms were generally considered to be good solid businesses. But recently, a number of large players have failed including Halliwells and Cobbetts.

There were different reasons behind the demise of these enterprises but the reality is there are a number of challenges which collectively could threaten the very existence of many smaller solicitors’ practices over the next few months.

  • Professional Indemnity Insurance (PI) – is the insurance cover which self-employed professionals must have. In the case of solicitors if they cannot obtain it at standard rates they can fall back on the Assigned Risks Pool (ARP) for cover - a safety net but which costs significantly more than normal rates. But after September 2013 the ARP will not take on further business and so any solicitors without PI cover will cease to trade. 
  • Jackson Reform Legislation – on the back of pressure to quell the claim culture which has mushroomed in recent years, new rules will apply to conditional fee (“no-win no-fee”) arrangements. In order to drive down costs, fixed fees will apply. Only larger firms benefiting from economies of scale will be able to make it pay.
  • Price Competitive Tendering (PCT) – is an initiative to drive down the nation’s Legal Aid bill. New restrictions on the availability of Legal Aid coupled with a combination of fixed fees and bidding for work is expected to drive down fee income.
  • Conveyancing – has been hit by the depressed property market, the development of “conveyancing factories” and the dominance of some large estate agencies in directing business.
  • Will-writing and probate work – continues to face stiff competition from unregulated will-writers as well as the might of Co-operative Legal Services.
  • More regulation – The Solicitors Regulation Authority (SRA) is stepping up risk management and compliance within firms.
  • A lack of support from lenders – the banks will not lend to businesses which they see as vulnerable or unprofitable

There will be mainly established practices facing a very uncertain future and it is highly likely that they won’t have confronted this type of problem before. Many will have high levels of borrowing and may well be worried about losing their livelihoods and possibly their homes.

The worst thing In such a situation is to do nothing. There are ways of “buying time” with creditors, of negotiating with banks or even managing a timely exit if the firm has no future.

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Replies (2)

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David Winch
By David Winch
24th Jun 2013 16:18

Price Competitive Tendering

The government's plans for Price Competitive Tendering (PCT) are currently in the consultation phase.  The period for responses ended recently and the government's reaction is expected in the Autumn.

At present approximately 1,600 firms have criminal legal aid contracts which permit those firms to supply legal services to defendants in criminal proceedings (generally involving work relating to attendance at police stations and advising and representing defendants in Magistrates' Courts and, to a lesser extent, in Crown Courts).

The government is planning to reduce the number of eligible firms to 400 or less.  This means that, on the face of it, three-quarters of solicitors' firms currently offering criminal case advice under legal aid will cease to be able to do this next year.

At the same time the government intends to cut current fees by at least 15% - so that firms which do get a contract will have to cut their prices.

It is planned that the 400 new contracts will be open to a wider group of bidders than currently.  The Eddie Stobart haulage group are amongst those expected to bid for a contract under the new arrangements.

This means that firms who have a significant part of their turnover coming from criminal legal aid face an uncertain future.

The government's PCT proposals are certainly controversial and there is a body of opinion opposed to them.

David

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By Phil Meekin
11th Jul 2013 13:40

Solicitors and Price Competitive Tendering

Thank you for putting some flesh on the bones of my comments on PCT. Your expertise and additional comments are appreciated. The coming months are certainly going to be challenging for solicitors - particularly the smaller practices.

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