Legal Aid

MOJ's dilemma (and providers' demise)

PUBLISHED January 28, 2012

The March 2011 report by Otterburn must have made uncomfortable reading for MOJ, and it has taken government a long time to face up to the realities of the CDS it has created. The most profitable firms welcomed in the year of 2011 whilst operating on margins of just 12% and in the certain knowledge that these would soon to fall to 5% (i.e. a reduction of 75% overall).

Perhaps MOJ has finally realised that it has gone too far, at last accepting the warnings of industry commentators that the supplier base is now so fragile that there is a very real risk of firms committing commercial harakiri if tendering becomes a reality. Maybe this explains the sudden about face and postponement of competition to 2013 - it wants to see if any of us are left standing and, if we are, what shape we're in.

The reality is that the reprieve from tendering changes nothing in terms of Otterburn's main findings, which were based on price cuts that are now fully realised. The truth is many firms will die, not because of the much-feared "cull", but rather because of a much slower, suffocating squeeze; the modest profits that firms once earned will give way to ever-increasing losses. And what are the options? It's now next to impossible to gain in market share, and with each new duty solicitor admitted to a scheme it actually becomes further diluted. Redundancies loom large, salary cuts are inevitable. The CDS is in very real danger of fragmenting just at a time when some stakeholders want providers to "invest in technology". Where the capital will come from is anyone's guess - it certainly won't be the banks.

Therein lies the dilemma: on the one hand MOJ recognises the benefits of economies of scale and apparently remains committed to price competition; yet on the other it cherishes the benefit of administrative price fixing so that when its political masters tell it "save us 25%" it thinks of a number, lops it off existing fees and then amends the relevant funding order - job done. There's no contract to worry about, and no single group of providers with sufficient market share to mount any serious opposition.