Will lawyers come under the government’s consultancy scrutiny spotlight?

The overuse of consultants in the public sector has made big headlines. Trish Carroll expects it is just a matter of time before the microscope is applied to law firms.

Many law firms with large federal government practices must be concerned about the possibility of the governance spotlight being pointed at them, especially given the Albanese Government’s pledge to cut its spending on labour, advertising, travel and legal consultants and contractors by $3.1 billion over the next four years.

Royal commissions and other inquiries have exposed the epic scale of government outsourcing, as demonstrated by the Royal Commission into the Robodebt Scheme and the Victorian COVID-19 Hotel Quarantine Inquiry.

The NSW Government is committed to overhauling rules on hiring consultants and plans to reduce spending on consultants and labour hire workers. This last category could be a concern for some law firms which have set up lawyer labour businesses and it is the foundation of many legal resourcing businesses.

Business model under fire

NSW Labor senator Deborah O’Neill summarised the over-use of consultants in this way: “The whole business model of these companies is ‘billable hours’ – the longer they stay there, the less efficiently they do the job.”

She could have been talking about law firms, although for billable hours to be used as anything other than an internal management tool these days is rare. Hourly rated pricing became an endangered model once clients, public and private sector, rejected them some years ago.

Of course, that does not mean law firms have completely given up using them.

Reading the stories about the big four accounting and management consulting firms allegedly using decoy pricing and land-and-expand strategies made my jaw drop.

Does a different procurement and monitoring model apply to them? Those types of antics would never go unnoticed with the level of scrutiny, transparency and auditing requirements that law firms must meet.

Barriers to clear

Since the mid-1990s, I’ve advised law firms on tenders to all levels of government and companies, private and public, operating in the aviation, broadcasting, construction, defence, energy, finance, FMCG, gambling, insurance, media, NFP, property, resources, retail, retirement living, telecommunications, transport, water and waste management sectors.

During those years, the height of the hurdles that law firms needed to jump – and the value they needed to quantifiably deliver – kept rising. Today, the requirements are mountainous.

Since the early 2000s, big corporations, mindful of the push for ethical behaviour and corporate social responsibility (as we knew it then), were grilling external legal service providers on issues such as gender equality, environmental sustainability and flexible work practices.

During the past 10 years, cybersecurity, reconciliation action plans, ever-higher levels of professional negligence insurance, increasingly extensive monitoring and compliance requirements, and agreements to divert up to 20% of client-specific revenue to pro bono activities have been added to the list of non-law requirements.

The test for law firms has always been hard and it just keeps getting harder. This is leaving many smaller and worthy firms unable to successfully compete because the cost of entry is akin to a homeless person aspiring to buy a Taylor Swift concert ticket.

The risk of a small number of very large firms in any discipline having the lion’s share of work from the public sector and the upper end of the listed company market has always had the potential to create a monopoly of sorts. This seems to be what has happened with the big four accounting firms, resulting in a lack of genuine competition and the government’s dependency.

The professional services sector is at a tipping point, thanks to some unscrupulous behaviour by a few. Any readers old enough to remember the sayings: “No one got fired for buying IBM”, and “No one got fired for hiring McKinsey” can now feel a tad justified if they disagreed with that philosophy. We now have proof that over-reliance on the biggest has never been without risk. It’s a practice that dilutes both competition and access to a greater diversity of people, skills, pricing and experience.

In the lead-up to the next Commonwealth legal panel process, it is worth reflecting on how the scrutiny on retaining outside firms will play out – especially when nine panel firms currently account for 51% of the Commonwealth’s external legal spending.

Trish Carroll is the principal of Galt Advisory, a business that helps law firms and individual lawyers devise and implement successful marketing and business development strategies. Contact her at trish@galtadvisory.com.au.