BSB Entities - Barristers pursuing public sector legal work under the Procurement Act 2023

Those following the Procurement Bill will no doubt recall its reading in Parliament following two years of extensive consultation and policy development post-Brexit. The Bill, reforming the pre-existing Procurement Rules received royal assent in October 2023, and has passed into law as the Procurement Act 2023.

While this may mark the final legislative step in the Act's passing, it's essential to note that a significant amount of secondary legislation is yet to be introduced. The Cabinet Office has consulted on secondary legislation with the intention of bringing elements of the Bill and the wider regime into effect. The new regime is expected to come into force in October 2024, following a six-month 'go-live' period.

The Procurement Act 2023 will represent a radical overhaul of the law governing public procurement, consolidating the rules for public contract procurement under one Act. Once in force, the Act will govern all procurements undertaken by public bodies and utilities in England, Wales, and Northern Ireland.

While the commencement of the new regime is still some distance away, barristers keen on public sector legal work should seize this opportunity to familiarise themselves with the Act, access available government resources and assess the best approach to bidding for public sector contracts aligned with their operational goals and objectives.

The Procurement Act 2023 aims to establish a unified procurement system, simplifying the process for public sector suppliers to submit credentials and facilitating easier bidding for organisations of all sizes. In the interim the existing regulations will, of course, continue to apply.

One of the most important considerations for any barrister interested in bidding for a public sector contract is who the bidding party should be. Bidding as an individual or a syndicate of individuals, without the benefit of limited liability protection, is not advisable in what can be a potentially high-risk environment. While the traditional chambers operating model remains strong in many ways, it does not necessarily provide a solution to the limited liability protection issue.

Fortunately, there are some effective alternatives now available to barristers in the form of entities (or ‘Bar firms’ as we like to call them). The Bar Standards Board’s regulatory reforms enabling barristers to form BSB entities have opened up new models for barristers to collaborate via limited liability profit-sharing vehicles. These new operating models can take the form of Authorised Bodies (fully owned and managed by authorised individuals) or Licensed Bodies (owned and managed jointly by authorised individuals and non-lawyers).

There is, of course, also the option for barristers to form a law firm regulated by the Solicitors Regulation Authority for contracting purposes, which some have done.

So, what are the main considerations when looking to form a BSB entity?

1. Understanding the allocation of risk and reward

Sharing risk and reward may be an alien experience for many barristers. Some will find it hard to take the required entrepreneurial leap, put their cash on the line and accept the uncertainties of collective decision-making. It is best to keep the core ownership of the entity tight and engage other resources required by means of employee or contractor status.

2. Getting the legal structure right

Limited liability partnerships (LLPs) and limited companies are now the main structures for legal businesses. Barristers are therefore likely to follow suit and choose to form a BSB Authorised Body or BSB Licensed Body. It is important to take specialist accountancy and legal advice on the best legal structure for your entity.

3. Testing the financial model

However exciting a public sector contract may appear, it is essential to prepare financial forecasts to understand its true financial impact. If your forecasts are prepared internally, it would be wise to have them thoroughly stress-tested by external accountants who are experienced in the legal sector. They are likely to have a good awareness of the special market forces impacting the models and will help you temper any unrealistic optimism.

4. Clarifying how conflicts will be managed

Individual barristers within traditional chambers are very adept at managing conflicts of interest. Once barristers are working together and sharing profits as LLP members or co-shareholders, the issue of conflicts becomes inherently more complex. Conflicts need to be anticipated and considered very carefully as part of any entity project. The development and enforcement of sophisticated conflict management protocols is therefore essential. It is wise to run scenario tests to make sure future conflicts can be identified and managed.

5. Securing professional indemnity insurance

The introduction of BSB entities has already impacted the Bar Mutual and the wider professional indemnity insurance markets, which have responded positively. Barristers working together in an entity structure will have a very different risk profile to those operating in a traditional chambers model. The growing complexity of the professional indemnity insurance market emphasises the value of engaging professional indemnity insurance brokers who truly understand the legal sector and have direct access to the whole of the market.

6. Getting the funding mix right for your venture

Unless all funding for an entity is being provided by the entity owners themselves, some external funding will be required. This could be debt (from banks or other lenders) or equity (from private equity providers or business angels) or a mixture of both. The key to getting the funding mix right is in understanding the drivers of the funders and how these will impact the structure of the entity and its ability to operate in the way the owners want it to. It is important to be clear on what type of funding is needed in the foreseeable future and seek to align the interests of the entity owners and the funders.

7. Satisfying the regulator’s requirements

Whether you choose to establish a BSB-regulated Bar firm or an SRA-regulated law firm, both regulators will want clear sight of the vehicle’s operational structure (including participants’ roles and responsibilities), clarity regarding how risk management and compliance will be managed, how financial risks will be managed, how the firm will be funded, how the vehicles’ legitimate and compliant sources of work will be generated, and evidence of professional indemnity insurance cover.

In summary

Barristers who are considering bidding for public sector contracts have a genuine opportunity to structure a bidding vehicle that will not only provide a high level of personal liability protection but also create a business entity that could potentially generate capital value in the long term. Understanding the changing rules relating to procurement and taking active steps to prepare for future invitations to tender in this way will enable barristers to demonstrate to suppliers a level seriousness and innovation that should increase their chances of success.

And finally, some tips for tendering for a public sector contract
  • Thoroughly understand the procurement process: It is vital to understand the procurement process specific to the public sector organisation and the legal services being procured. Carefully review the tender documents, including the invitation to tender (ITT), the evaluation criteria and any additional guidance provided. Pay special attention to the deadlines and other requirements, ensuring all requisite information is provided in the correct format. Understanding the process will simplify navigation and increase your chances of success.
  • Highlight your relevant expertise and experience: Emphasise your expertise and experience in the specific area of law relevant to the specific public sector contract. Provide clear evidence of a successful track record in similar cases or matters. Highlight any notable achievements, such as landmark judgments, complex legal challenges, or precedent-setting cases. Demonstrate a deep understanding of the legal issues and challenges faced by the public sector buyer and showcase how your expertise can address their specific needs.
  • Showcase your value and unique selling points: Showcase your unique selling points and detail your value proposition for the public sector buyer. Clearly articulate how your skills, knowledge and advocacy abilities can contribute to the successful resolution of their legal matters. Emphasise your ability to provide efficient and cost-effective solutions while maintaining the highest standards of professionalism and ethical conduct. Highlight any additional value, such as innovative approaches, alternative dispute resolution methods or training and education initiatives that you can offer the public sector stakeholders.

For further information, please email Joshua Bates or call 0151 906 1000.