The Purchaser-Supplier Approach in Legal Aid

7. The Potential Negative Impacts Of A Purchaser-Supplier Model

The sixth questions in the Terms of Reference asks, based on the experience in Australia, what are the disadvantages and potential negative impacts of a purchaser-supplier model?

There has been no evaluation of such impacts. In principle the advantages of a flexible, costsensitive mechanism such as the PSM that offers funding/policy agencies greater control over expenditure and greater co-relation of policy objectives and service delivery outcomes seem obvious. However any change to an established order will provoke opposition. The demise of the mutual interest approach to legal aid in Australia was such a change. The pros and cons of such a change can be debated (see 4.0, 5.0 & 6.0). Certainly State and Territory governments, the legal aid commissions, the CLCs and the legal profession strongly opposed the new Commonwealth legal aid policies (see below). The reason is that effectively the price of the Commonwealth asserting its financial power was to change the balance of power in the national scheme, at least as regards funding, providing and meeting needs for legal aid in Commonwealth/Federal matters. However, its former partners were not necessarily opposed in principle to the application of the PSM. But they were opposed to the process, the accompanying cuts in Federal funding, and the end of the special relationship State and Territory governments, legal aid commissions, the legal profession and CLCs had previously enjoyed with the Commonwealth/Federal government in the administration of a national approach to legal aid.1976.

We need to look briefly at the history to see why this was so. The introduction of a PSM in federal funding of legal aid was a result of two major changes in Commonwealth policy. The first was the decision in early 1996 by a newly elected Federal government to abandon the mutual interest approach reflected in the Commonwealth-State legal aid agreements that expired on 30 June 1997. The second change was its subsequent decision to change the amount of Commonwealth outlays by cutting Federal funding. These decisions alone would have been sufficient to upset the co-operative expectations of the parties to the mutual scheme, but it was the spirit and process that inflamed and exacerbated the negative impact of the new Commonwealth/Federal policies.

Based on pre-election statements the legal aid commissions, legal profession and CLCs "felt assured" the new conservative government would continue to support the existing national scheme (Senate Legal and Constitutional References Committee 1997(a): 1). In effect, that it would continue to support a mutual interest approach to legal aid. However the government unexpectedly and promptly moved, in response to an AUS$10bn budget deficit, to reduce federal outlays by AUS$8bn dollars in 1996-98. Shortly afterwards it gave 12 months notice terminating the existing Commonwealth-State legal aid funding agreements, and agreed to meet with State governments "to discuss the principles for the re-negotiation process and how negotiations should proceed" (Senate Legal and Constitutional References Committee 1997(a): Appendix 3 at page1). The demands of the 1996/97 Federal Budget pre-empted this meeting, and the government unilaterally cut AUS$33m from its proposed AUS$128m 1997/98 payments to State and Territory legal aid commissions (see Fleming 2000: 346-7 & 357).

Among the interest groups the reaction to the proposals of the Federal Government "was one of heartfelt outrage" (Fleming 2000: 348). Even conservative State Attorneys'-General expressed "disbelief that this could be actually happening" (Senate Legal and Constitutional References Committee 1997(a): 9). The fact and size of the reduction in Federal funding angered State and Territory governments, commissions, the legal profession, and CLCs. Particularly given the evidence of NLA and others that inadequate funding saw the national legal aid system "in a parlous, if not desperate, condition" (Fleming 2000: 348; National Legal Aid 1996: 7; Senate Legal and Constitutional References Committee 1998).

However it was not only funding cuts that damaged relationships. The interest groups had over 20 years invested a great deal in making the mutual interest scheme work, and had a considerable sense of ownership of the scheme (see 4.0 above). They believed the mutual interest approach "had succeeded in creating a sustainable, mixed delivery legal aid system, albeit flawed and limited in scope" (Fleming 2000: 348). Above all it was the timing and style of the process that replaced the mutual interest approach to legal aid that deeply dismayed the interest groups, including State and Territory governments (Fleming 2000: 350):

"Some believed that the Attorney-General and his officers, confronted with the need to deliver expenditure cuts, had singled out the national scheme as a "soft" policy programme in an increasingly commercialized ministerial portfolio. Even if untrue, the interest groups believed the government had acted abruptly, and without adequate consultation. Moreover, many in the legal aid community were left in doubt as to whether the Howard government really understood the importance of the "partnership", or mutual character, of the national scheme. And, if it did understand, whether its peremptory style signalled an undisclosed agenda to dismantle these informal alliances which had been crucial to its success" (Fleming 2000: 349).

Furthermore the interest groups and State governments had believed that the Federal government was committed to a mutual interest approach. Thus, they interpreted its actions as a breach of good faith (Fleming 2000: 366). For them the modus operandi of the Commonwealth Attorney- General and his advisers in FLLAD's predecessor had created an indelible impression. It appeared that "the federal government was either acting with undisclosed mala fides towards the national scheme, or with reckless and negligent disregard for the consequences of introducing its new legal aid policies" (Fleming 2000: 367). Such concerns were not allayed by what State and Territory governments, legal aid commissions and others saw as the ex post facto, token interest of the Federal government "in consultation, while clearly intending to stamp its will on the new legal aid agreements" (Fleming 2000: 368; Senate Legal and Constitutional References Committee 1998: 152).

The process also raised concerns about the real Federal agenda for the "future of the national scheme, and organized national, public provision of legal aid" (Fleming 2000: 368). Many considered the division of responsibility into Commonwealth/Federal and State/Territory matters and recipients revived a funding mechanism discredited in the early 1980s. Other saw demarcation of responsibilities for legal aid as contradicting mainstream national regulatory trends favouring co-ordinated responses to legal regulation and problems of governance. Such responses were evident, for instance, joint Commonwealth-State responses to cross-vesting superior court civil jurisdiction, the AJAC access to justice strategies and the corporations scheme and related developments in companies and securities law (Fleming 2000: 368-9). Co-ordinated national responses were also favoured in National Competition Policy, the role of the Australian Competition and Consumer Commissions, the Australian Law Reform Commission inquiry into civil justice, the mutual recognition legislation and Commonwealth/Federal government strategies to develop a national market for legal services. The Federal government may have had good reasons for departing from this regulatory trend, and re-introducing the Commonwealth-State divide in funding and providing legal aid. If so, it did not articulate them clearly, and neither were its former partners in the mutual approach nor others observing the process convinced by its policy rationales:

"The . demarcation between the funding of Commonwealth and State law matters is not only harsh but is impractical and, in many instances, absurd. Our society says that the legal system in this country has reached a point where many areas of law involve inextricable overlap between state and federal law and remedies, and that this is a process which cannot and should not be unravelled or reversed at this state" (Senate Legal and Constitutional References Committee 1997(a): 15).

The Commonwealth/Federal government's actions in announcing and implementing its new policies had a profoundly damaging impact upon its relationship with other stakeholders in legal aid. Especially State and Territory governments, the legal aid commissions and their managers, the Law Council of Australia and the law societies and bar associations and practising lawyers. The new policies were far less damaging at least in the short to medium term for the community sector (see 9.0). However, it was the State and Territory governments and the legal profession that had served as senior partners with the Commonwealth/Federal governments in the management of the national public interest in legal aid through a mutual interest approach. For such actors the introduction of a PS-approach to Federal funding allied with cuts in Commonwealth/Federal expenditure and separating provision into Commonwealth/Federal and State/Territory realms denied their deep investment and involvement. The new Commonwealth policies also affronted many of the values of the socio-legal institution of legal aid, social citizenship under the 'rule of law' and professionalism which had informed and justified the participation of the legal profession in the national legal aid scheme. Inevitably, the result was to produce a dramatic loss of trust and confidence in the Commonwealth/Federal government and its legal aid administration. As one Commonwealth insider described it in 1999, the State and Territory governments, the CEOs in NLA and the lawyers "don't trust us any more" (Fleming 2000: 370-1).

The events and experiences described above occurred in 1996-7. However at the Canada/Australia Workshop in 2001 the FLLAD CEO was asked when he thought the States and Territories, legal aid commissions and the legal profession might "forgive" the Commonwealth. He replied "not in my lifetime". This may be an understandable overstatement from an official who was personally involved if not an architect of the changes to Commonwealth/Federal policy. In the last five or six years there have been changes to key personalities in legal aid in the States and Territories. NPM and the PSM have more deeply pervaded the public sector. Moreover it was never entirely obvious that all legal aid commission managers, for instance, were committed opponents to PS-approaches. In any event the perceived disadvantages of PS in Federal legal aid is inextricably linked to the total amount of Federal funding, and the on-going politics of Commonwealth-State relations. The vigour with which the Federal government and FLLAD have re-shaped legal aid into an integrated, legal aid/access to legal services public policy project, the spread of access to justice ideals and changes in the legal profession and its relationship with the state have also contributed to diluting the bitterness of the legacy of the events and experiences of 1996-97.

A PS-approach to legal aid has other potentially negative impacts. In the Australian experience a 25% cut in Federal funding preceded the adoption of PSM Commonwealth-State legal aid agreements (see above). Federal funding was increased in late 1999 when the Federal government announced it would increase expenditure on legal aid by AUS$63m over four years (Williams 1999(b)). This only partly restored the States/Territories and legal aid commissions to their previous position. In 1996 prima facie evidence suggested that national per capita expenditure on legal aid was relatively low, and the mutual scheme insufficiently funded to satisfy even expressed needs for legal aid (see 5.0 above). The Australian experience has occurred in a context in which the adequacy of state expenditure on legal aid is at least highly not always seek to tie reductions in total state outlays or expenditure with the application of PSapproaches to control legal aid funding and maximise policy outcomes. However both the Australian and English experience evidence such a connexion. We need to at least consider the possibility that the onset of conservative approaches to overall public expenditure may be a tangential disadvantageous tendency of governments applying the PSM to funding and providing legal aid.

The Australian experience also demonstrates other possible negative impacts of a shift to a PSapproach. Evidence presented to a parliamentary inquiry in 1997-8 suggested that the Federal government/FLLAD had narrowed the focus of it management interests in the national legal aid system. Witnesses and the inquiry were concerned that Federal managers were taking "insufficient steps ... to collect, analyse and publish meaningful data" on the impact of the changes to Commonwealth/Federal legal aid policy, and issues such as the impact of legal aid in the legal system, including the numbers of unrepresented litigants and accused (Senate Legal and Constitutional References Committee 1998: 30-6). The parliamentary inquiry urged that the Federal government/FLLAD should continue to provide national statistical and clearinghouse functions (Senate Legal and Constitutional References Committee 1998). Similarly it recommended that Federal legal aid administration should "retain an active role in promoting coordination and cross-fertilisation of innovations and research amongst the various legal aid bodies in Australia, notwithstanding its decision to fund only Commonwealth matters" (Senate Legal and Constitutional References Committee 1998: 24).

Moreover particular features of the PS-arrangements were also criticised. The bifurcation of service delivery in the new legal agreements and the separate accounting requirements for expenditure on Commonwealth/Federal and State/Territory matters is said to have "imposed additional administrative burdens and costs on the legal aid commissions" (Senate Legal and Constitutional References Committee 1998). The Federal government/FLLAD was criticised for insufficiently acknowledging the impact of such costs, and also the costs incurred by legal aid commissions in the transition from the pre-1996-7, mutual interest approach to the national scheme.

There is reliable prima facie evidence that the application and substance of the service delivery components of the PS-mechanism impacted negatively on the provision of legal aid. Such evidence relates to the 1997-2000 version of the Commonwealth-State agreements. It may be that the service delivery requirements in the current legal aid agreements have redressed some of these problems. In any event witnesses before the 1997-8 parliamentary inquiry pointed to flaws in the definition of Commonwealth Priorities in the new legal aid agreements. It was claimed these criteria were insufficiently specific for decision-making purposes. The list of Commonwealth Priorities failed to establish a hierarchy of actual preferences for the provision of legal aid from a limited pool of Federal funds. One consequence was that "the demands of one category identified as a priority might starve another of funds" (Senate Legal and Constitutional References Committee 1998: xviii). It was alleged that another consequence was that otherwise eligible applicants were sometimes refused assistance in Commonwealth/Federal cases because of insufficient funds remaining in a particular "Commonwealth Priorities pot" of Federal legal aid funding (Senate Legal and Constitutional References Committee 1998).

Similar prima facie evidence suggested that the operation of the initial Commonwealth Guidelines impacted negatively on access to legal aid. The Means Test was also said to be overly stringent and inequitable. Witnesses before the 1997-8 parliamentary inquiry claimed, for instance, that the Means Test failed to address differences in the cost of living across Australia.

The Merits Test in the Commonwealth Guidelines was also said to have inequitable consequences. In particular, the requirement that Federal funds made available to an applicant should be limited to the level of resources available to an "ordinarily prudent self-funding litigant" (Senate Legal and Constitutional References Committee 1998: 229-30). This requirement was said to disadvantage poorer people who might need to take action to recover an amount of money, for instance, the loss of which could be readily absorbed by a more affluent person.

There is also evidence that application of the Commonwealth Guidelines had other adverse consequences for access to legal aid. In family law matters the PDR such as counselling and conferencing was generally required before a grant of legal aid would be considered. Witnesses before the parliamentary inquiry believed the Commonwealth Guidelines insufficiently acknowledged the occasions when culture and language rendered PDR inappropriate (Senate Legal and Constitutional References Committee 1998). In bifurcating responsibility for legal aid the Commonwealth/Federal government eliminated Federal funding from domestic violence matters arising under State or Territory law. This was criticised for its serious impact on timely access of victims of domestic violence to the courts (Senate Legal and Constitutional References Committee 1998).

The allocation of funds prescribed in the Commonwealth Guidelines also attracted criticism. In addition to widely expressed criticism of the "Commonwealth Government's decision to no longer accept responsibility for the funding of any matters arising under state and territory laws" (Senate Legal and Constitutional References Committee 1998: xvi). Commonwealth Guidelines capped the maximum amount of Federal funds provided to any legally assisted litigant. In 1998 AUS$10000 was that amount in family law cases. Critics conceded that funding caps improved efficiency in managing legal aid funds. But evidence presented to the parliamentary inquiry suggested that in practice funding caps "created many problems", and many witnesses believed maximum allowable funding levels were far too low (Senate Legal and Constitutional References Committee 1998).

The operation of the Commonwealth guidelines in criminal law was also criticised, particularly in the context of major drug trials. The parliamentary inquiry condemned the Commonwealth/Federal government for choosing "to erect an artificial distinction of legal aid funding" in such trials, particularly given "the law enforcement effort against drugs increasingly demands the putting to one side or jurisdictional boundaries" (Senate Legal and Constitutional References Committee 1998: xx-xxi). The inquiry also noted that previously the Commonwealth had operated a scheme to fund legal aid in high cost trials in matters of Commonwealth criminal law. This scheme and its funds had been absorbed into the Federal funds provided to legal aid commissions under the new Commonwealth-State agreements. In "no longer providing the topup funding" the Commonwealth/Federal government was said by its critics to be "squeezing the resources of the legal aid commissions, forcing them to reduce the use of Commonwealth funding to other areas, in order to meet the costs of major criminal cases" (Senate Legal and Constitutional References Committee 1998: xxi & 112). In civil matters the parliamentary inquiry reported that the "general thrust of the evidence" before it "was that the availability of legal aid" in civil matters "was too restricted" (Senate Legal and Constitutional References Committee 1998: xxi). It noted the Commonwealth Guidelines allowed little, if any, legal aid in immigration matters and noted criticisms of the availability of legal aid in social security, product liability, veterans' and discrimination case (Senate Legal and Constitutional References Committee 1998: xxi).

The application of a PS-approach to funding legal aid has other potential negative consequences. The PSM is a species of NPM (see 2.0 above, below & 8.0 below). NPM and its technologies were not always welcomed into the public sector, and pockets of significant resistance remain. Resistance to NPM is not only opposition to change. It is also principled opposition, and ongoing if not widely acknowledged struggles between corporatism, consumerism and professionalism within states and societies (see Freidson 2001). Incorporating PS-mechanisms in contracting between funding/policy legal aid agencies such as the Department of Justice and FLLAD and providers such as legal aid commission and legal aid plans is unlikely to have any significant adverse consequences attributable to NPM per se. Public sector agencies already work in NPM contexts, and there are advantages to expanding interfaces between NPM and legal aid programs (see 6.0 above).

However, as an NPM-technology the PSM potentially holds negative consequences for providers contracting with agencies such as legal aid commissions and legal aid plans for the supply of legal services. In particular, for legal professionals supplying legal aid services under PS contracts. One reason is that legal professions are participants in the contests with corporatism and consumerism referred to above (see again Freidson 2001). Another reason is that the PS contracts provide a vehicle for NPM-based networks to infiltrate professional workplaces and legal professional work. There is a significant literature on the negative consequences for professionals and their work resulting from bureaucratisation through measures such as timecosting and corporatisation in private sector law firms, and quality management, cost and output monitoring in legal aid (see Sommerlad 1995 & 2002. See also Watkins & Drury 1994; Abel & Lewis 1989; Nelson et. al. 1992; Hanlon 1997). Similar literature exists with respect to the impact on professions working in other parts of the public sector, including health and education (see Hanlon 1999; Browning n.d.: 2).

Discussing this literature in any detail is outside the scope of this paper. One example is Sommerlad's 1999-2002 studies of solicitors' firms contracting with the Legal Services Commission in England. She interviewed solicitors to collect data with respect to working practices and firm culture, professional culture, including construction of the meaning of legal practice and the justice system, and the impact of quality management ("QM") reforms (2002: 365). Invariably interviewees viewed the reforms and the changes to legal work entailed by QM processes as "'inextricably part of the new managerial culture'" (Sommerlad 2002: 378 quoting Kronman 1993: 273-83). The solicitors conceded that such reforms had tangible benefits. However in fostering an instrumentalist conception of practice the reforms were "viewed as having a moral and professional cost in that they were antithetical to what the political solicitors characterised as an holistic approach to legal service" (Sommerlad 2002; 378-9). Sommerlad's research clearly demonstrates that the PS-contracting with legal professionals in legal aid can have adverse consequences, including, depending on particular contractual requirements (see below) adversely affecting the quality of services provided to clients. She concludes that these adverse potentialities of a PS-approach need greater recognition by policy-funding agencies when contracting for professional services:

there is a pragmatic argument for taking into account the views reported here as a principle of organisational learning in that, arguably, the re-negotiation of the bargain between society and this sector of the profession has been too forced. It is acknowledged that the rate of change in the sector has been very rapid, creating tensions between the need to drive change forward and to build partnerships with those who must implement that change. Further, the imposition of an accounting logic risks losing the culture of performance evaluation which depended on conscience, self-discipline, and the approval/disapproval of a community. To be successful in deepening and improving the existing concept of quality, and also improving access by retaining with the scheme 'good' solicitors, there should be collective consensual process which takes note of professionals' concerns to build a culture of trust and the mutual reinforcement of high standards (Sommerlad 2002: 380-1) [citations removed].

In PS-contracting as in other contracts the ability to shape terms and conditions rests with the party with the greatest economic power. In the legal aid context at the inter-governmental level that party is the major funding/policy agency such as the Department of Justice or the FLLAD. At the State or provincial level it is the regional legal aid commission or the legal aid plan. Q. 6 above rehearses the advantages that can accrue to such agencies from a PS approach, many of which also potentially offer benefits to providers. As in all contracting the dominant party can use its economic superiority to achieve win/win outcomes for both purchaser and provider. Conversely outcomes can unduly favour the position of the purchaser. A PS-approach, for instance, can enable the purchaser to create or intervene in professional markets, for good or ill. A purchasing funding/policy agency can use its economic power and market influence to drive down the price paid for legal aid, or to impose onerous conditions on providers. Whether such providers are legal aid commissions or plans, or practising lawyers or NGOs. Markets for legal aid in Australia are already price sensitive. The price paid by legal aid commissions for the supply of services has been insufficient to maintain participation in the national scheme. Many, if not a majority, of solicitors' firms no longer undertake legal aid work (see Dewar et. al.; Hunter 2000; Fleming 2002), a phenomenon that appears to be replicated in Canada (see Canadian Bar Association 2001). Supplying legal aid services is now predominantly a function of sole practitioners and small, two-partner law firms, as it is also in New Zealand, England and Wales and The Netherlands (see Fleming 2002). These practices are typically amongst the least remunerative, and lawyers' incomes far less than national maxima. Great care must be taken in deploying PS-approaches for purchasing agencies not to act as over zealous cost controllers, at the price of the already fragile nature of the markets serving national legal aid schemes.

There are other, latent disadvantages to the Australian experience. The adoption of a PSM did not necessarily extinguish problems of capture by service providers. But the nature of such problems in PS-approaches to public policy projects changes, highlighting the need for good contract management, and a realistic understanding of the socio-legal dimensions of contract (see Campbell & Vincent-Jones 1996). Similarly the application of PS-mechanisms risks commodifying the role of professionalised service providers, with potentially adverse effects for providing legal aid, for reasons that are discussed in answering Q. 7 below (see 8.0).

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