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Purchasing lore: Govt buys badly

Purchasing lore: Govt buys badly

Ideological but illogical, inefficient and expensive…words that sum up how the Australian Government buys in its legal expertise, Ernst Willheim says in analysing the recently-released Legal Services Procurement Report. The report has some excellent recommendations, he says, but it should propose further unwinding of the current “unsatisfactory arrangements”.

Report of the Review of Commonwealth Legal Services Procurement

By Ernst Willheim*

In an era when few outside government questioned privatization and market economics, the Commonwealth took the controversial step of opening up to the private sector the provision of legal services to the Commonwealth.

The Attorney-General’s Department was divided. Almost all the professional legal staff directly involved in the provision of legal services, including constitutional advice, legal advice to Ministers, advice on Cabinet and other proposals and the conduct of litigation on behalf of the Commonwealth, were moved to a new independent statutory corporation, the Australian Government Solicitor (AGS). Private law firms were allowed to compete for all but a tiny core of the Commonwealth’s legal work.

Within a short time, Commonwealth Departments were paying huge fees to private law firms. Clever accountants found a way for the Commonwealth’s own lawyers (AGS) to charge the Commonwealth for legal services. Commonwealth lawyers began recording their time and billing in six minute units and vast funds were expended establishing new computerized billing systems. Client Departments set up new bureaucracies to ‘purchase’ legal services. Huge sums are now spent by AGS and private law firms tendering for Commonwealth legal work and by Commonwealth departments calling for and assessing tenders.

Not surprisingly, many of the Commonwealth’s best and most senior lawyers were less than enthusiastic about the new arrangements. Some voted with their feet, choosing to move to highly remunerated careers in private legal firms. Faced with predatory head-hunting, salaries paid to AGS lawyers were increased ‘to stay competitive’ – much to the chagrin of their peers in the Attorney-General’s Department whose remuneration remained at traditional public service levels.

Now the procurement of Commonwealth legal services has been reviewed (Report of the Review of Commonwealth Legal Services Procurement, 6 November 2009).

The results are devastating. Not surprisingly, the Review finds: ‘The current system of agencies individually tendering for legal services is very costly’ (finding 42). Incredibly, the Review reveals: ‘There is no reliable data on the cost to the Commonwealth of agencies calling for and evaluating tenders for legal services or to service providers in responding to requests for tender. Anecdotal evidence, however, suggests that the total costs to agencies and service providers are substantial’ (finding 5).  The AGS, alone, spends $6 million per annum on tendering (para 152). Presumably private firms spend correspondingly substantial amounts. Presumably also, these huge tendering costs become part of the overhead costs AGS and private law firms seek to recover in their fees.

The absence of reliable data on the costs of the tendering process to the Commonwealth and to the service providers is a continuing theme of the Review (eg, paras 80, 81). One may well ask how this has come about. Can it be that where ‘reform’ is ideologically driven, those driving the reform are anxious to keep the costs hidden?

What about the effect on the quality of legal services? Here again the findings of the Review are devastating: ‘There are no accepted service-wide measures against which to assess whether agency practices are appropriate or efficient, or that staff are appropriately qualified or relevantly trained and experienced…’(finding 10). Perhaps even more worrying is the finding that: ‘The independent and uncoordinated development of in-house legal practices has been a major factor in the erosion of the role of the Attorney-General as the First Law Officer, and as such, responsible to Cabinet for ensuring the provision of appropriate legal services across the Commonwealth’ (finding 40). ‘(I)n-house lawyers frequently see themselves as working exclusively for the agency and resist any notion of the whole-of-government interests of the Commonwealth’ (para 109). Significantly, the Review makes no finding that opening up, to the private sector, the provision of legal services to the Commonwealth has brought about any benefit in service delivery.

So what solutions does the Review discover? Many of its recommendations are couched in ‘management speak’. Thus the very first recommendation is for: ‘A more coordinated and strategic approach to the provision of Commonwealth legal services’.  Later the Review calls for ‘a more holistic and strategic approach to the provision, and particularly to the management, of legal services across the Commonwealth’ (para 82). The Review goes on to recommend a cordinated procurement process, that in-house legal practices within Commonwealth agencies be ‘professionalised’ and that in-house lawyers receive relevant and continuing professional training. Few would argue against such recommendations. The extraordinary thing is that they are necessary at all.

Much of the current situation is attributable to acceptance by the Howard Government of the market-based philosophy of the 1997 Logan Report that, with the exception of a tiny core of executive government activities (estimated at 5% of Commonwealth legal work), agencies should generally be free to manage their own legal service requirements and to use private sector lawyers. This led to the development of large in-house legal practices independent of the Attorney-General and his Department, and  to the widespread use of private law firms for Commonwealth legal work.

Gone was the public sector ethic that career Commonwealth lawyers brought to their work. No-one with any familiarity with the conduct of Commonwealth litigation will be surprised to read the Review’s finding that AGS ‘is also seen as more rigorous in its observance of the LSDs,’  (Legal Service Directions) ‘particularly those relating to the Commonwealth as a model litigant’ (para 95). Gone also was the Commonwealth wide perspective the Attorney-General’s Department brought to the provision of Commonwealth legal services. The Review reports that ‘AGS…is generally more sensitive to wider Commonwealth issues’ (para 95).

Not surprisingly, the Review reports that (with the separation of the AGS from the Department) the Attorney-General’s Department ‘does not have the practice skills …to support the Attorney-General’s roles as the “guardian” of the rule of law’ (para 89). Not surprisingly, also, the Review reports ‘evidence of agencies withholding information and advice from other agencies’ para 85). More ominously, while some agencies value AGS for its whole–of government perspective, ‘some in-house lawyers avoid AGS for the same reason, and will opt for an external provider that will view the agency as the client rather than the Commonwealth’ (Appendix C, para 7). Gone also are the economies of using modestly remunerated Commonwealth employees for the Commonwealth’s legal work. Not surprisingly, the Commonwealth’s legal expenditure has mushroomed.

Many pages of the Review are devoted to lengthy analysis of alternative procurement and tendering processes and possible new methods of co-ordination. Yet there is no real recognition that it was precisely the decision to introduce private sector legal service providers that created the need for these extraordinarily expensive procurement and tendering processes and the consequential vast new bureaucracy, introducing  a new and wholly unproductive overhead. Similarly, the current co-ordination failures are a direct result of the fragmentation of legal service providers.

One of the more incisive passages in the Review focuses on the need for ‘a decision whether there is a continuing need for the Commonwealth to have a dedicated full-service legal practice with particular depth of experience in public law which is capable of advising on, and managing on its behalf with a whole of government perspective, most matters that are of concern to government’ (para 100).

Curiously, the Review does not ask the obverse. Is there any continuing need for, or benefit from, the continuing use of private sector legal service providers? One can only express wonder why, given the devastating findings concerning procurement of legal services from the private sector, the Review did not probe more deeply whether the decisions to open up the provision of Commonwealth legal services to the private sector brought more disadvantages than advantages and should be progressively reversed.

The Review’s terms of reference specifically required advice ‘whether another model (for example, a more centralized model) of legal services procurement should be adopted. Indeed, the Review was clearly aware of alternative models. It contrasts the ‘fragmentation of Commonwealth legal services…to the situation in many countries with comparable legal systems. In the United Kingdom, all central government lawyers, although they work within agencies, are responsible to the Attorney-General through the Office of the Treasury Solicitor. In Canada, with few exceptions, federal government legal services are provided through a central Department of Justice….The arrangements in these countries provide for a central focus for the provision of legal services. That focus is lacking in Australian Government legal services, with in-house practices providing services to agencies in a largely autonomous manner’ (paras 143, 144).

Having correctly identified the problems and possible alternative models, the Review unaccountably concludes, without further analysis, that ‘it is not realistic or even necessarily desirable to contemplate the re-centralisation of Commonwealth legal services’ (para 145). While there will undoubtedly always be a need for the Commonwealth to use outside lawyers in a small number of highly specialized areas, it is remarkable that the rationale for large scale use of private sector legal providers was not investigated.

No system is perfect. A Commonwealth AGS monopoly brings its own potential problems. Nevertheless one can only speculate whether ideological commitment to market philosophy remains an obstacle to serious re-consideration of the current unsatisfactory arrangements.

* Ernst Willheim is Visiting Fellow, College of Law, Australian National University, and a member of Civil Liberties Australia.

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