My generation

In the second of three articles arising out of Local Government Lawyer’s survey of heads of legal, conducted in association with DMH Stallard, Philip Hoult looks at the approach taken by legal departments to revenue generation and extracting maximum value for their authorities. Could more be done in these areas? he asks.

The momentum towards shared legal services looks almost unstoppable, with the ‘map’ of provision being redrawn on an almost weekly basis. These headline-grabbing arrangements can make eminent sense at many levels. But is there a danger that they could distract local government lawyers from other – potentially more immediately rewarding – methods of boosting their authority’s revenues or savings?

For this survey of heads of legal, DMH Stallard and Local Government Lawyer drew up a list of 17 possible ways in which legal departments could deliver added value, ranging from improving recovery of revenue owed under the terms of s. 106 agreements to realising better value from property assets through feed-in tariffs and right to buy schemes (see table 7).

The results are intriguing, revealing significant variation among heads of legal in their awareness of these methods. And all of the strategies are arguably under-exploited, it would appear. As Dr Mirza Ahmad, Corporate Director of Governance at Birmingham City Council, says, the research shows that “the vast majority of legal departments are responding to the challenges, although there appears to be little evidence of all chief legal officers proactively getting ahead of all the challenges.”

The most widely implemented method of revenue generation is recovery of revenue owed under s. 106 agreements, with 77% of respondents saying this has already been implemented and a further 16% saying it is under consideration. However, only one other strategy on the list – charging schools for previously free services – has been implemented by more than half of the authorities covered by the survey.

Many of the methods on the list are currently under consideration at a majority of the authorities surveyed, in particular the creation of new trading models (65% of councils), introducing charges for previously free services where they go beyond minimum statutory requirements (63%), and examining existing commercial contracts, including PFI contracts, to ensure best value is being realised (59%).

There is no doubt that these strategies can sometimes be challenging to implement – as Barnet very publicly found to its cost when it tried to bring in its so-called easyCouncil model.

Susan Tovey, head of legal services and monitoring officer at Test Valley Borough Council, says her authority has been looking at what it can start charging for. “The one we are specifically considering at the moment is charging for planning pre-application discussions,” she reveals.

“The problem [with charging generally] is that you also have the political dimension,” adds Tovey, who is the current President of the Association of Council Secretaries and Solicitors. “If people think they are paying too much, they complain to their local member who then complains. It is a very difficult one. But I know all services here are looking to see if there is a way we can raise income as opposed to or as well as cutting costs.”

Some authorities, as they plan their budgets for 2011/12, are now setting great store, for example, by their ability to deliver substantial savings through contract reviews. Two county councils – Hampshire and Surrey – recently both said they aimed to save around £10m by renegotiating contracts and asking their contractors to “share the pain”.

This is one strategy where the legal team can really play their part, by examining for example what the existing deals say, working out the level of flexibility they contain and helping with the subsequent negotiations. “It is true that authorities could do better in terms of screwing down contracts and really getting the maximum value out of them or in simply going to our contractors and having a frank discussion along the lines of ‘look, we’ve just suffered massive cuts, are you going to help us out?’,” acknowledges Quentin Baker, director of law at Local Government Shared Services (LGSS), the shared service between Cambridgeshire and Northamptonshire county councils."

Plymouth City Council is one authority that has been looking at contract review. “We’ve only just started and there was some initial reluctance among internal clients to do it,” reports head of legal David Shepperd. “When I first mooted it, they said ‘good idea, but we’ll do it in-house’. I instantly said that we knew we had resource issues and I also questioned whether we could really act as our own critical friend on this.”

Shepperd’s view is that this is a situation where an authority can engage a private firm that has diagnostic tools to do the review. “If they can save us a bit of money, there’s no reason why we couldn’t have some form of fee basis where the more they save us, the more they earn. I don’t think there’s anything wrong with that. – we wouldn’t have saved it otherwise.”

It is not just about savings, he says. “We’ve just started a review using the diagnostic tools on quite a big contract and I’m pretty confident that we will see service improvements as well as cashable savings. You have got to demonstrate to your clients that it’s worthwhile.”

Risks v rewards

Significantly, however, contract review also produced the highest number of respondents (60%) suggesting legal risk is a key challenge in its successful implementation (see Table 8). The ability to make any headway depends in part on where the authority is in the cycle of the contract and how the contractors see you as a long-term client, Baker adds. “It can depend on whether they want to gain a bit of goodwill in the bank or whether they are so big that you are a mere minnow in terms of their client base, and they don’t really care whether they lose you next time or not. But it’s certainly worth trying.”

In LGSS’ case, Baker says his team have also been involved in particular in two other areas of revenue generation: reviewing what an authority can and cannot charge for; and helping to rationalise and make the most use out of property. From the DMH Stallard list, the strategies least likely to be under way or under consideration were raising revenue for capital projects through an additional business rates supplement (with just 7%), challenging anti-competitive outdoor advertising contracts and ensuring the correct business rates are being paid (12%) and leasehold enfranchisement as a tool for release of capital receipts (16%).

But there could certainly be mileage in these initiatives. Earlier this month, for example, the OFT revealed that it had opened an investigation into contracts entered into by two major media owners with local authorities over advertising on bus shelters, information panels and other street furniture.  In a report, the watchdog – which emphasised that its investigation was at an early stage and that there should be no assumption of an infringement of competition law – said it wanted to consider the long durations and potentially restrictive terms of Clear Channel and JCDecaux’s contracts with councils. Among the issues the OFT wants to look at is why the site rents appear low relative to the advertising revenue the site installations may generate and why there appeared to be limited competition for new contracts.

DMH Stallard has been advising a group of London local authorities in relation to the OFT market study into outdoor advertising. Partner, Chris Corney, who is leading the team says: “Any councils locked into a long exclusive advertising contract should seriously consider whether they may have opportunities to generate revenue as a result of the challenge to the contracts. New technologies are creating new ways for council’s to communicate with residents and to generate revenues from advertising, but too many authorities find the road blocked by extraordinarily long contracts signed many years ago purporting to give exclusivity to certain operators. Alongside this problem is the issue of unlawful advertising which we are turning into a new revenue stream for authorities that we work with.”

Beyond the comfort zone

Implementing many of the strategies on the DMH Stallard/Local Government Lawyer list does, of course, require a willingness on the part of officers and – crucially – members to make it happen. The most sensitive strategies in reputational or political terms were identified as introducing charges for previously free services (cited by 80% of respondents as a key challenge), increasing parking revenues and penalties (75%), raising revenue for capital projects through an additional business rates supplement (71%) and attracting sponsorship for council initiatives or facilities (67%).

In other cases, notably raising revenues through asset based lending such as tax increment financing and creating new trading company models, financial risk is seen as a major hurdle. As local government law specialist Meic Sullivan-Gould points out, the survey shows that some of the easiest things to do and which have the potential to raise the most money will create the most fuss and be very unwelcome politically.

“There are some unpalatable choices to be made and lawyers and other professionals can be expected to be challenged out of their comfort zones to deliver their client authorities’ aspirations,” he says. “Politicians may be more inclined to take legal or other risks where the alternative is to risk unpopularity. However, the scale of the overall challenge is such that they may not have that luxury – they may have to take decisions that are both unpopular and risky in order to balance the books.”

Sullivan-Gould, a former president of the Association of Council Secretaries & Solicitors and ex-head of legal at the London Borough of Hackney, suggests that against this backdrop, “utmost care in making decisions will be needed to avoid unnecessary challenges on process failures – it ought to be that the judges will accept and sympathise with the dilemmas that decisions on merits involve in such circumstances.”

Already in 2011 there have been high-profile examples of cases where a decision-making process has been successfully challenged – such as London Councils’ plan to reduce its grants scheme and the Education Secretary’s decision to bring to a halt a range of Building Schools for the Future projects. A common element in both those cases was a failure to discharge equalities duties adequately.

It is one thing though to identify a potential strategy for boosting revenues or extracting greater value, another to have the ability to deliver it. The survey shows that respondents are generally confident in their own departments’ resources and expertise (see Table 9). The main exceptions relate to raising revenue through asset based lending (44% of respondents acknowledged their team’s shortcomings in this respect), creating new trading company models (43%) and raising revenue through an additional business rates supplement (41%).

The verdict of heads of legal in relation to their non-lawyer colleagues within the council is rather more circumspect. Respondents report a clear lack of specialist expertise elsewhere in their authorities when it comes to realising better value from property assets (with 80% suggesting this was a key challenge), challenging anti-competitive outdoor advertising (69%), making claims against utility companies where their works overrun (67%) and appeals to the Business Rates Valuation Tribunal over the valuation of council-owned property (67%).

On the plus side, these findings suggest that local government lawyers have an opportunity – if not to take the lead – at the very least to play a prominent part in driving forward local authorities’ efforts in these areas.
And, on another positive note, the research shows that respondents are confident that they would have significant input in implementing these strategies. For nine out of the 17 strategies on the list, more than three-quarters of respondents say the legal department would be involved at the early stages and provide the legal work in-house. So could now be the time to seize the day?

Philip Hoult is Editor of Local Government Lawyer. He can be contacted on 020 7239 4915 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..

For more information on how to implement any of the strategies discussed in this survey, contact Jenny Thorp, head of the public sector group at DMH Stallard, on 01293 605061 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..

See also:

Best foot forward: Philip Hoult’s assessment of the strategies local government legal departments are adopting to cope with rising demand and decreasing resources

Demographics: Local Government Lawyer surveyed 50 heads of legal at local authorities in December 2010.