LAA Financial Survey

The Legal Aid Agency have been sending out an email requesting answers to 19 questions about the financial position of its providers.  This is likely to be in response to Government ministers asking questions about the strength of its supplier base.

We have been told (although we cannot verify this) that the 19 questions were picked out of 40 originally raised.  We copy at the end of this email the questions asked.  Please note that the Government may be considering offering financial support.

We would like to provide some advice about this.

What is the contractual position?

The relevant sections of the contract Standard Terms are as follows (emphasis added):

2.4  Without prejudice to more specific provisions of this Contract and to your professional obligations in respect of Clients, you and we agree to work together openly and with mutual trust and co-operation in order to achieve value for money and to ensure that public money is spent with probity, accountability and in the public interest.

2.8  Both parties agree that good communication between their personnel is key to the effective operation of this Contract and agree to ensure that their personnel understand this and to provide relevant training if they consider it appropriate.

4.4  In addition and without limiting Clause 9.1, if:

(a)  you are under Official Investigation;

(b)  you have exceeded your Maximum PoA Limit;

(c)  your accounts are not audited and/or certified by an independent accountant or the independent auditor qualifies your accounts;

(d)  your financial position is such that we consider that there is a significant risk to your Clients or public funds; or

(e)  we have any reasonable concerns about your financial position,

you must within 14 days of our request disclose to us such other financial information as we reasonably require about you (including information about your monthly management accounts, Bank Covenants, Bank Facilities and your and your partners’ and/or directors’ loan agreements and details of other assets and liabilities) and/or about Contract Work (and any other work secured by us).

7.9 You must demonstrate to our reasonable satisfaction that you are complying with, and have at all times while it has been in force complied with, this Contract. You must demonstrate this when we are Auditing you and at such other times as we may require in accordance with this Contract.

7.19 You must have an IT System which enables you to perform your obligations under this Contract. Subject to Clause 7.20 below, your IT System must include the following as a minimum:

(a)  a system to identify all your Contract Work files;

(b)  a system to enable you to identify Client conflicts;

(c)  a system for identifying relevant Matters and cases when acting for a Client in a number of Matters and/or cases;

(d)  a system for accessing a list of all Matters and cases that are open and closed (where relevant);

(e)  a system which identifies key dates in respect of any Matter and/or case;

(f)  a time recording system for all Matters and cases;

(g)  a system for identifying an up-to-date record of the value of your work in progress (including disbursements shown separately) on all Matters and cases;

9.10 If you fail to co-operate, provide access or Records as required by Clauses 7, 8 or 9 we have reasonable grounds to believe that there is a risk to Clients and/or public funds. We may, therefore, without limiting our rights to apply any Sanction in accordance with Clause 24.1, suspend your authority to start new Matters and cases and your entitlement to receive payment from us.

Further, the SQM and Lexcel require quarterly variance analysis of cash flow against budget and Clause 7 of the contract standard terms requires all providers to be keeping data, including:

  • Current caseloads
  • Time recording
  • Current value of WIP

Therefore, there is a contractual obligation to provide financial information.  But is it really necessary to provide answers to so many questions?  On the one hand, given the truly exceptional circumstances it is arguably reasonable for the LAA to be making such enquiries.  On the other hand, asking for such a lot of information in a time of crisis particularly when many staff may have been furloughed could be unwelcome.

 

To what degree should we provide all this information?

This arguably depends on a number of factors including:

  • The degree to which the practice is dependent on legal aid
  • Fund-take i.e. the amount claimed from the LAA
  • The financial strength of the firm

Thus, if legal aid is only a small portion of the firm’s income and the firm can demonstrate that it is in a strong position then the Contract Manager (CM) may be content with just some of the information requested.  One firm that aren’t particularly dependent on legal aid called us yesterday and said that they were concerned about their motive and the time it would take to complete the questionnaire.  We advised that they call their Contract Manager to have a general conversation first and provide them with an overview of the firm’s financial position.  The firm had that conversation with their CM and gave the following feedback to us:

“The firm is relatively financially strong going into the crisis and has taken steps to protect our cash flow position.  I therefore rang our contract manager to ask how much information was needed as it would mean a huge amount of research to obtain the figures etc.  Our contract manager advised it was just to get a general feel for how things are for providers as the LAA have been asked to report to Ministers and is an opportunity to see if they can argue for more money/relaxation of the schemes that do not need rule changes.  Our CM advised this isn’t designed to be an arduous task and if we do not know the answers to the questions without a huge amount of digging, then so be it.  The questions do relate to the whole of the firm and not just the legal aid part of the business. I therefore ended up going through each of the questions over the phone and if I was unable to provide figures he accepted a general answer without me needing to revisit the information.”

 

Working with Contract Managers

It is important to have a good working relationship with your CM.  This can greatly influence the degree to which they exercise discretion and how they treat your firm.  We think it is a good idea for all firms is to have an initial phone call quickly with their CM to get a feel for the degree to which your Contract Manager requires all of this information.

 

Could this really lead to a grant and / or other financial assistance?

This may depend upon the collated answers to this survey.  However, we wouldn’t encourage firms to paint an unduly poor picture of the firm’s finances.  If the CM thought the firm was about to collapse then the LAA might be resistant to paying any further claims.  But neither should the firm portray an unrealistically positive picture of the current position.

We understand that the LAA were previously considering whether to offer 100% Payments on Account (POA) of costs for civil firms.  However, an analysis of the degree to which firms were claiming such payments may have showed that many providers weren’t claiming POAs which may have led them to believe that the picture wasn’t too bad.  However, such a snapshot is misleading because many providers aren’t dependent on legal aid and perhaps that may be why they are asking these questions.

We would welcome hearing from you about how you have got on with your CM with this exercise. We copy the 19 questions below.


 

  1. What is your current legal aid WIP figure?
  2. Since the beginning of the C19 restrictions what decrease in Legal Aid demand have you seen, based on number of new enquiries/New matters started.

(Please breakdown by category of work and form of funding wherever possible, e.g. Family and Legal Help/Certificated or Crime and Crime Lower)?

  1. What decrease in demand from other revenue streams have you experienced, based on number of new enquiries/matters started and in what departments specifically?
  2. Based on your forecasting prior to C19 and since the restrictions started what has been the % change in your actual turnover compared to what you projected?
  3. If there was a shortfall in receipts compared to costs in April 2020, what size was this?
  4. What shortfall (compared to running costs) do you anticipate in each of the next 3 months?
  5. Based on your forecasting prior to C19, what were the expected cashflows into and out of the business for March/April?
  6. What is your typical monthly turnover in April?
  7. What were the actual cash inflows and cash outflows for the business in March/April? In April 2020 what has been the cost of running the business (if this is different from the cash outflow for some reason)?
  8. How many of your staff who primarily work on Legal Aid have you put on furlough (using Coronavirus Job Retention Scheme)?
  9. What proportion of your staff who primarily work on Legal Aid is this?
  10. What cost saving has furlough provided?
  11. What proportion of your typical income comes from LAA (rather than private funding)?
  12. (Civil only) Have you changed your approach to claiming POA?
  13. (Crime only) Have you changed your approach to applying for hardship or interim payments in Crime?
  14. Is your billing up to date? If no please state why
  15. (Civil Only) Have you converted all WIP possible into POA? If not, why, and what barriers to doing so are there?
  16. Other than furloughing staff, have you considered or attempted to access other schemes from the Government’s support offer?
  17. Did you experience any issues with accessing any of the government support schemes applied for?

We hope that you find the information useful.