“Contract notices, once rare, are now the near inevitable outcome of many audits and file reviews.”
Not so long ago, those in charge at the Legal Services Commission (LSC) accepted that legal aid contracts are complex and that sometimes, in the real world, mistakes are made. A 10 per cent margin for error was given on Legal Help file audits (and up to 20 per cent before you were typically required to face significant recoupments) and contract notices were rare.
However, through fear of the National Audit Office and any risk of its accounts being qualified again, the LSC and now the Legal Aid Agency (LAA) have, in most cases, stepped away from any contractual give and take. Even a one per cent margin for error is now usually unacceptable (though it would be fair to say that, in my experience, there is still occasional inconsistency in contract management decisions, with some LAA contract managers giving some practices more leeway than other practices, or indeed other contract managers).
Contract notices, once rare, are now the near inevitable outcome of many audits and file reviews (contract notices reached their peak in 2012/13, with c 1,500 that year, and are now back down to about 900 a year). Rarely a month (and when this change of approach started, a week) goes by without a panicked firm contacting me because it has been given a contract notice and is worried about the consequences or aggrieved that it was given.
So what is a contract notice? Is it a sanction?
The answer is that a contract notice is not a contract sanction. It is merely, and I use the word ‘merely’ with some reticence, a notice that the provider has, in the LAA’s view, acted in breach of contract.
Obviously, any breach of contract could be construed as being serious, but contract law has long recognised that in any ongoing contractual relationship, minor breaches of the contract specification can and do occur, and that they do not undermine the contract as a whole. To reflect the underlying contract law, and in my view in a way that is perhaps far more restrictive than the case law required, the LAA lawyers created the contract term now contained in clause 24.1 of the Standard Civil Contract (Standard Terms) 2013, 2014 and 2015 and of the Standard Crime Contract 2010.
That clause says that the LAA may apply a sanction if the provider has ‘persistently breached’ the contract. Persistent breach is defined as:
•three breaches of the same term in any 24-month period; or
•six breaches of the contract in any 24-month period.
The LAA’s right to issue a contract notice arises from clause 24.2, which states that if the provider fails to comply with any of its obligations under the contract, the LAA may set out in a notice the nature of the breach and the action that it requires the provider to take to ensure that the breach is remedied and/or not repeated. That clause also requires that the required action shall be ‘proportionate to the relevant failure’.
Proportionality, or the lack of it, is a key theme when a collection of contract notices is used to justify a contract sanction. I have seen a number of cases where the first sanction the LAA turns to is contract termination (or suspension of payments), both of which are at the draconian end of potential sanction responses.
So what should you do if you get a contract notice?
The answer depends on whether you accept that you breached the contract and then on whether that notice will trigger the three- or six-strike rule contained in clause 24.1.
If you accept that the notice is accurate, even if you think it petty (and even if you’ve been doing the same thing for years without being pulled up by the LSC or the LAA), then you should accept it (unless you have clear evidence of another firm having been caught doing the same thing but not being issued with a notice, in which case you can argue inconsistent treatment). Where possible, maintaining a good relationship with the LAA, and particularly with your contract manager, pays dividends as you tend to see less audit activity and occasional minor mistakes are overlooked.
If the notice highlights a systemic problem then offer up an action plan and implement any necessary system and process changes. What you absolutely shouldn’t do is ignore the notice or not implement the necessary changes. You’ll only get caught out at your next audit and then you’ll have two notices for the same breach and, typically, a diary note that the LAA is coming back again in three to six months to check that you have fixed the problem.
If, however, you disagree with the contents of the notice then you are entitled to pursue both the informal reconsideration (clause 27.1) and formal review (clause 27.3) processes as set out in the contract (under previous iterations of the contract, some notices could not be appealed, but later versions allow access to the review process).
The informal reconsideration is a review, typically by the contract manager and/or his or her manager. Sadly, as a consequence, they are not often successful as the reviewers are usually reviewing their own decisions, on which they may already have strong views. However, the formal review process is dealt with by more senior LAA lawyers (up to the legal director) and ultimately by the Contract Review Body (which contains a Law Society nominee) and you can sometimes get positive outcomes if you can prove that the contract manager has misinterpreted the contract or the facts.
Maintaining a good relationship with the LAA pays dividends as you tend to see less audit activity.
Where you are unlikely to ever win a review is where you accept that the contract notice was accurate but argue that giving the notice was unfair. It is hard for the LAA to accept that it does not have the right to issue a notice, which is of itself not a sanction, pointing out where it reasonably believes a provider to have acted in breach of contract. Fairness doesn’t come into it.
If you use the review processes then you need to demonstrate that the contract manager has misinterpreted the facts, or that he or she has misunderstood the contract or misapplied it (wilfully or negligently). Remember that sanctions come where contract notices are collected. Three or six strikes are all that is needed to lead to a sanction, so if you feel that a contract notice is wrong then you should seriously consider asking for a review.
If the LAA has decided to issue a contract sanction (either as a result of persistent breaches that have led to contract notices or because it has taken the view that a single breach or collection of breaches are sufficiently material to warrant a sanction (or worse, where it believes there has been a fundamental breach of contract)) then you should seriously consider seeking external advice. This can be from a consultant, solicitor or counsel, but should be done before you construct your review request (unless you are very sure of the grounds for the review). I have spent many an unproductive hour trying to undo the damage caused by angry, ill-thought-through and, occasionally, downright unprofessional review requests sent to the LAA by hurt, disappointed and angry lawyers at the end of their tethers. Such requests are rarely accurate and sufficiently measured, and often focus on emotion rather than law or fact. Remember the old adage about a lawyer who acts for himself … ■