Reengineering the Market for Criminal Legal Aid

7/28/2019 Reengineering the Market for Criminal Legal Aid

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June 2013

Reengineering the marketfor criminal legal aid

Alex Marsh

School for Policy StudiesUniversity of Bristol


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Reengineering the market for criminal legal aid

1. Introduction

1.1 The Coalition Governments broad agenda is underpinned by the goal of fiscal

consolidation. The Ministry of Justice is expected to contribute to this overarching

objective through a review of its activities in order to ensure service delivery is

efficient. The consultation paper Transforming Legal Aid: Delivering a more credible and

efficient system (henceforth TLA) outlines a major overhaul of the criminal legal aid

system, among other changes. The associated Impact Assessment indicates that the

package of changes is forecast to save the Ministry of Justice 120m per annum.

1.2 The proposed changes to the legal aid system inevitably raise significant questions

regarding access to justice. The consultation on the proposals is closing just as the

UN Special Rapporteur on the independence of judges and lawyers drew the strongconclusion that:

it is of paramount importance that legal aid schemes be autonomous,

independent, effective, sustainable and easily available in order to ensure that

they serve the interests of those who need financial support to have access to

justice on an equal basis with others.1

However, I will leave it to those better qualified in such matters to comment on these

aspects of the proposals. I want to respond to the way in which the proposals seek to

reshape the legal aid market qua market.

2. The nature of reform

2.1 In some respects the proposals in TLA are an extension of themes pursued by Lord

Carter in his review of Legal Aid Procurement.2 Yet, the two sets of proposals differ

in important details: for example, the role that the citizens choice of supplier plays in

the system. And these detailed differences fundamentally shape the way in which

the legal aid market will work.

2.2 The TLA proposals are unusual. For the last thirty years public service reform across

many policy sectors in many countries has tended to focus in rhetoric if not reality -

upon disaggregating provision, increasing competition through the creation of

alternative providers, and empowering consumer choice as a key mechanism for

driving quality. And in areas such as social care there has been something of a move

away from provision based on block contracts towards the use of spot purchasing.

On all points the TLA proposals work in the opposite direction: increasing the scale

1http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13382&LangID=E

(Accessed: 03/06/13)2http://www.legalaidprocurementreview.org.uk/publications.htm(Accessed: 03/06/13)
http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13382&LangID=Ehttp://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13382&LangID=Ehttp://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13382&LangID=Ehttp://www.legalaidprocurementreview.org.uk/publications.htmhttp://www.legalaidprocurementreview.org.uk/publications.htmhttp://www.legalaidprocurementreview.org.uk/publications.htmhttp://www.legalaidprocurementreview.org.uk/publications.htmhttp://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13382&LangID=E


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of providers, reducing the number of alternative suppliers, moving to larger block

contracts, and removing consumer choice.

2.3 The case for reengineering the market in the manner proposed rests on the premise

that there are unexploited economies of scale and scope in the provision of legal

services. Yet, this foundational matter goes unexplored. The existence of such

economies is asserted as a matter of belief, rather than documented. Such economies

are, indeed, by no means self-evident. The argument relies on the implicit claim that

there are significant impediments in the existing legal aid system to prevent such

economies of scale and scope manifesting themselves organically.

2.4 In fact, TLA suggests that a viable model of service provision under the new market

structure could be the use of local agents (para 4.74). If this were a sustainable model

of service delivery thenprima facie this would raise questions about the existence of

significant scale economies. The magnitude of the economies to be achieved simply

by access to shared back office services needs to be treated sceptically.

3. Assessing cost

3.1 Any sensible appraisal of the costs and cost savings from reform cannot be

conducted at the level of a single budget heading. It is important to assess the reform

holistically. In this case, it is important not only to take account of the reductions in

headline costs associated with legal-aid funded service delivery but also to recognise

the countervailing costs associated with regulating quality. And it is important torecognise the knock on costs to the courts associated with, for example, those

unable to access appropriate legal aid-funded assistance seeking to take on the role of

inexpert litigant in person. Any claim to savings based on only one part of the

picture has no credibility.

3.2 The MoJ acknowledge the need for holistic cost assessment when it is argued in the

Impact Assessment that the package of reforms delivers overall savings of 120m per

annum, but the Department do not offer details of savings from the various

components of the reforms. It is stated that this total savings figure includesprojected savings resulting from the reduction in administration costs as a result of a

reduction in the number of providers. I was unable to identify whether this figure

also included additional costs incurred under the other relevant headings. The

documentation therefore appears to offer no defence against the criticism that the

reforms will lead to additional costs elsewhere in the system that will neutralise any

savings to the legal aid bill itself.


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4. False analogies

4.1 When thinking about market structures it is important to avoid false analogies.

Governance structures are transaction specific. That is, just because a market

structure is suitable/efficient for one type of transaction it doesnt mean that it will be

suitable for another. Evidence on cost savings from blue collar compulsory

competitive tendering of local authority services in the 1980s was of limited value in

understanding the impact of compulsory competitive tendering of white collar

services in the 1990s. The transactions involved are very different. The key

dimensions of transactions that will shape the efficient governance structure include

frequency, flexibility, complexity, observability and measurability of outputs,

interconnectedness, costs of rectification, and the need for investment in transaction-

specific assets.

4.2 Hence, when the consultation paper suggests (para 4.16) that cost reductions from

economies of scale have been achieved in other areas of legal services such as

conveyancing we need to reflect upon whether the analogy between conveyancing

and criminal defence work is meaningful. Arguably conveyancing is a much simpler,

more standardised and more routinized task. Contract specification is simpler.

Satisfactory fulfilment of the contracted service is easier to assess. The costs of

inadequate quality are lower and error is reversible, if only at potentially significant

cost. On theoretical grounds, we should be cautious about drawing strong

conclusions from the conveyancing experience that can be meaningfully applied tocriminal defence work.

4.3 An analogy that TLA does not explore is with franchising in rail or local bus markets,

even though this would seem to be apposite. The TLA proposals mirror the sort of

market structures created by rail franchising. It is competition for the market rather

than competition in the market. While it is proposed that there should be more than

one provider in each CJS areas, from the point of view of the service user there is

going to be only one supplier. The alternative would be the equivalent of modal

choice in the transport example: switching to self-representation or accessing

representation privately at significant personal cost.

4.4 The rail franchising analogy may also tell us something important about the

evolutionary trajectory of the market that the MoJ is trying to engineer. TLA

emphasizes the importance of preserving a range of suppliers for future rounds of

competition. The mechanisms offered for doing so are, however, rather speculative.

The rail example tells us that preserving alternative suppliers to ensure future

competition is difficult in large scale franchising operations. Instead, we can expect

increased concentration over time as a small number of suppliers come to dominate

the market. This tendency to industrial concentration is even stronger in local bus


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markets, which have come to the attention of the Competition Commission for that

reason. New entry is rare. Costs, judged holistically, are not reduced.

4.5 The analogy is not perfect: transport markets are characterised by network

externalities and genuine technical economies of scale. But TLA is trying to engineer

an artificial market at scale, even where the technical conditions of production do not

necessarily warrant it.

5. Markets for credence goods

5.1 Legal advice and advocacy are credence goods.3 Such goods have peculiar

characteristics. There is a fundamental and ineradicable asymmetry of information

between consumer and provider. But there is an element of expertise in service

provision which means that greater transparency and information sharing will not

necessarily place the consumer on an equal footing with the provider. The quality ofan experience good cannot easily assessed before purchase but only during or after

consumption (eg. a haircut); the quality of a credence good is difficult or impossible

to assess even after consumption.

5.2 Markets for credence goods are not extensively studied.4 Where they are studied it

tends to be markets for activities like car or computer repairs. The closest the

literature usually comes to legal advice is a discussion of medical diagnosis. Yet,

medical diagnosis is arguably a more straightforward service to contract for than

legal services because service requirements and standards of delivery are lesscontext/fact specific and therefore easier to verify.

5.3 Key to understanding the way credence good markets work is the role of reputation,

trust and track record. Much business is generated through word of mouth

recommendation. These are the key mechanisms for driving quality and market

evolution.

5.4 Much of the literature on credence goods focuses on provider-induced demand and

over-provision as a result of consumers lack of information and expertise. Whether

this is a problem in part depends on ease of verification (of output quality and

performance) and the providers liability if they are found to be misdiagnosing or

over-providing. There is a strand of the literature concerned with under-provision,

including fraudulent behaviour. A key finding from this literature is that where

3 Credence goods are contrasted with normal, search and experience goods.4 The literature is typically seen as starting with Darby, M. and Karni, E. (1973) Free competition and

the optimal amount of fraud,Journal of Law and Economics, vol 16, no 1, 67-88. A recent synthesis and

overview of the issues, set in a game-theoretic framework, is Dulleck, U. and Kerschbamer, R. (2006)

On doctors, mechanics, and computer specialists: The economics of credence goods,Journal of

Economic Literature, vol 44, 5-42.


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quality of service is difficult to verify quality degrades in response to reductions in

fees. Recent theoretical exploration has developed the argument that fraudulent

behaviour is more likely in larger scale providers with brand recognition and subject

to closer monitoring.5

5.5 The key point is that most of the literature on credence goods has not examined legal

services and has not examined the particular pattern of structures and incentives that

TLA is proposing to create. That is, how providers of a complex credence good will

respond to a fixed price regime. So the guidance this literature offers on the point at

issue is rather limited.

6. Quality, price and choice

6.1 One of the key proposals in TLA is that choice of representative be removed from

defendants. This no doubt raises important questions associated with rights. Thequestion here is how will it affect market functioning. As noted above, much public

sector reform over several decades has been predicated on the idea that consumer

choice is a key driver of quality. The MoJs argument would appear to be that in this

market that is not the case. Or, at the very least, the pursue of volume and

engineering a market to minimise income risk for providers is more important than

any imperative to quality originating from consumer choice.

6.2 Undoubtedly markets for credence goods place limits on the extent to which

consumers are able to judge quality of service. But there are clearly key aspects of theservice - such as whether a legal representative is able to master and recall the facts

of the case, whether they are attentive and deal speedily with process - that are best

judged from the consumer perspective. In this respect the situation is little different

from interactions associated with medical care, a scenario in which policy views

consumer choice as entirely possible and appropriate.

6.3 Furthermore, to the extent that individuals have repeated interactions with the

criminal justice system they could plausibly claim to be expert consumers.

6.4 In the case of such repeat interactions there is most likely a cost saving associated

with individuals being represented repeatedly by the same local firm: background

and history are already know, briefings can be truncated. If each case has to start

from scratch with a new legal advisor then that will be lost. Costs will

correspondingly increase. TLA is silent on how such cases would be treated.

6.5 TLA proposes that the system of remuneration for legal aid work be simplified. With

the exception of very high cost cases standard fees will be used and providers will be

5 Brown, J. and Minor, D. (2012)Misconduct in credence good markets, NBER Working Paper, December.


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expected to absorb variability in actual costs per case. The standard fees will be

reduced as a result of competition for the market.

6.6 The incentives in this arrangement are clear. The proposals are similar to the

experiments with price competition in the health sector. Acute health care presents

similar problems of observability, measurement and verification of quality. From my

reading of the literature, the empirical evidence in health suggests, first, that the

detailed design of incentive schemes is crucial to understanding their effects and,

second, that forcing providers to compete on price leads to quality deterioration. In

the health literature, competition on the basis of fixed-prices is generally seen as

potentially beneficial, while price competition is seen as much more problematic, if

ensuring quality is a genuine concern.

6.7 Given difficulties in observing and verifying quality in criminal defence work, the

incentive will be to degrade quality. This could be done through reducing the skills

and/or remuneration of the service supplier and/or reducing the amount of effort

exerted in relation to each case. Clearly, effort is endogenously determined. The

incentive will be to close out a case as fast as possible in order to maximise the

surplus from each case. Cases for which additional effort would raise the probability

of a successful defence, but does not deliver certainty of outcome, will be

unattractive and, most likely, not pursued to the extent justified by the evidence.

6.8 TLA allows for a change of legal representative if the relationship between client and

representative has seriously broken down. But it does not detail what serious

breakdown would look like. Would service provision that is perceived to be poor be

sufficient justification?

7. Regulation and compliance

7.1 By removing consumer choice, the system proposed by TLA places all the

responsibility for guaranteeing quality on the legal representatives professional ethic

and external regulation. The general problems of effective external regulation in such

circumstances are so well-known as to not require rehearsing here.

7.2 Although details sketchy, TLA and the accompanying IA appear to suggest that, in

order to encourage market entry, suppliers would effectively be fully indemnified if

they were forced to withdraw from the market early because a contract is cancelled.

If that is the case then it moves all the risk on to the public purse. This will do

nothing to drive up quality of provision.

7.3 Given the key role external regulation will play in the TLA system, it is doubly

unfortunate that the consultation paper does not explain in any detail what the

regulatory framework will look like. One would assume that it would have to be


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comprehensive and rigorous in order to combat the powerful new incentives to

degrade quality that are being created. The current system cannot be assumed to be

adequate. The implication is that monitoring and compliance costs will have to

increase if this is to be an effective quality assurance mechanism. It is concerning

therefore that TLA has more to say by way of assurances that unnecessarybureaucratic burdens on contracted providers will be minimised than it does about

robust regulatory structures.

7.4 This issue is further complicated by the fact that the Impact Assessment for TLA

makes it clear that the MoJ is looking for no more than an acceptable level of

service; yet it gives no indication of what acceptable service means in this context

and how it will be observed, measured, and verified.

8. Implementation

8.1 If the MoJ were to decide to go ahead with the scheme proposed by TLA then the

stated timescales for implementation would appear optimistic. They can be

contrasted with those proposed by the Carter review, which allowed considerably

more time for providers to adjust to the new parameters of the system. There is a risk

here that a rush to tender the services without sufficient time for preparation leads

both to a poorly specified set of requirements on the procurement side and

inadequate competition for contracts emerging as a result of an insufficient number

of available suppliers. The result will either be gaps in coverage or CJS areas with

fewer than the required number of different suppliers to avoid conflicts of interest.

8.2 The reengineering of the legal aid market represents a comprehensive and complex

change with unpredictable consequences, some of which could be substantial and

negative. There is a strong case for piloting the approach in one or more CJS area in

order to understand better the associated risks and to develop effective strategies for

mitigation.

8.3 TLA rules out the possibility of piloting the proposed approach without offering any

very credible reason for doing so. The need for rapid implementation is neverexplained. Hasty implementation is rarely wise or successful implementation.

Prudent evidence-based policy making would indicate that piloting the new

approach is vitally important. Neglecting to do so would be foolhardy. Indeed, given

the evident risks, it would be rather extraordinary.

9. Conclusion

9.1 The reforms proposed by TLA represent a profound alteration to the way criminal

legal aid will be delivered. They move the system into uncharted territory. There is a


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considerable danger that false analogies will be drawn. And that false comfort will be

drawn from inappropriate analogies.

9.2 Only if institutional design is informed by a careful reading of the nature of the

transactions involved in providing a particular service is reform likely to be

successful. Certainly it is vital to avoid simplistic ideas such as competition on price

delivers efficiency gains and quality improvements. This is simply bad economics.

Price competition can deliver benefits for certain goods under certain conditions. The

questions then become: are we dealing with such a good and do those conditions

apply here? If not then uncritically application of nostrums from textbook economics

will lead to significant policy errors.

9.3 Given the unavoidable level of interpretation, inherent uncertainties and emergent

strategies involved, legal advice and advocacy represent one of the most complex

services that exist. There is a limited base of theory and evidence from which to draw

lessons about the impact of the proposed contractual arrangements on this market.

However, it is clear that the proposed system will embed new and potentially

perverse incentives that will need to be combatted through regulation. Whether the

reforms will, when viewed holistically, deliver genuine technical efficiency gains is

highly debateable.

9.4 The case for piloting the approach to test that it meets objectives associated with

access to justice as well as delivering efficiency gains cannot easily be disputed. It

would be of great concern if the MoJ were to pursue such radical reforms without

appropriate groundwork having been done first.


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About the author

Alex Marsh is Professor of Public Policy at the University of Bristol. He has been Head of the

School for Policy Studies since 2007. Alexs research and writing has encompassed a wide

range of topics in the fields of housing studies, public policy and regulation.

Between 2005 and 2009 Alex has been managing editor of Housing Studies, the leading

international academic journal in the field. He continues as a member of the journals

Management Board.

Alex worked part-time as a Visiting Academic Consultant to the Public Law team at the Law

Commission between 2006 and 2010. His work with the Commission addressed compliance

issues in the private rented sector and systems of redress against public bodies.

From 2004 until 2012 Alex was a trustee of Brunelcare, a Bristol-based charity providing

housing, care and support for older people. For six years he chaired Brunelcare's Audit and

Scrutiny Committee.

www.alex-marsh.net

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Reengineering the Market for Criminal Legal Aid

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