The federal government’s announcement that it would tighten spending has brought some speculation that ACT law firms may face reduced work. ALB finds that despite this, most law firms are optimistic about their projected performance for the coming year
The prime minister, Kevin Rudd, has declared that government spending must be reined in across a number of different areas. Does this mean that Canberra-based private law firms will have to make do with less government work from now on?
Managing partner of Meyer Vandenberg Archie Tsirimokos says he already sees signs of change in various government agencies.
“Some of the government departments are already cutting back on their spending, and that would presumably include their spending on legal services,” he says. “That could mean that there will be less work for legal firms.”
Meyer Vandenberg has responded to this by consolidating its market position and focusing more on client relationship management. Australian Government Solicitor (AGS), on the other hand, has begun better informing its clients about legal expenses incurred and helping them to get more value for money.
Partner in charge of Clayton Utz in Canberra Alfonso del Rio believes that a slowdown could change the type of work that firms undertake. “I do not see a change in the complex and challenging reform work, but I do see a decline in the general funding work. That sort of work is going to be done in-house and in my opinion that’s the sensible way,” he says.
Clayton Utz provides legal advice to the immigration, health and finance departments. It also advises the Department of Education, Employment and Workplace Relations (DEEWR), the Australian Customs Service and the Australian Taxation Office (ATO).
About 30% of Clayton Utz’s Canberra practice is devoted to private sector work, says del Rio, with a focus on the commercial and construction industries – the strongest in the ACT. In addition to this, over half of the firm’s federal government work is done outside of Canberra and requires support from its Sydney, Melbourne and Brisbane counterparts.
Local ACT firms are also significant players. One of them, Goodman Law, is bullish on the current market for legal services. Steven Gavagna, managing partner, doesn’t expect a downturn in government work, speculating that work volume will remain the same.
Nevertheless, Goodman Law has begun negative gearing through market consolidation. It has commenced negotiations for the acquisition of one or two law firms in the ACT and a Sydney-based firm within the next six months.
“In doing this, we are looking to be both law and sales accredited,” says Gavagna. “This also allows us to do semi and full government work. We are looking to do medium to large work, which is how we will benefit from a flattening market.
”The names of the firms have not been disclosed, but they are said to have long-standing relationships with institutional clients such as banks and large private enterprises.
“The ACT government sees risks associated with private firms, but our takeover targets should make them feel more comfortable about using us for their ‘smart’ work,” says Gavagna.
Consolidation: the next step?
A source told ALB that a number of long-established practices may decide to leave Canberra due to market volatility and reduced work. It is also understood that some smaller practices – those with fewer than five solicitors – may decide not to stay in business. This could result in a flurry of mergers and acquisitions.
According to sources, there are a number of firms looking at holding takeover talks with smaller legal practices. Clayton Utz has expressed interest in acquiring practices that could add value to its service. “I would be very keen to engage in something similar to our Corrs Chambers Westgarth acquisition, where we employed 10 new staff members after Corrs closed its Canberra office,” says del Rio.
AGS has expressed interest in recruiting legal talent and says it is always looking for new staff.
Property: the temporary fix?
Over the past five years Canberra’s rapidly growing property market has been a constant source of work for law firms. The vast majority of it has been government-related, while a significant proportion is devoted to the private sector.
Clayton Utz has acted for a number of apartment developments in Belconnen and Bruce. The firm claims once to have exchanged over 200 contracts in a period of three weeks. “Based on my workbook, construction work in the ACT is absolutely full on,” says del Rio. “We should be busy for around three years.” Arguably the most widely publicised recent property deal was a 70,000m2 government block in the city that sold for A$97m – one of the most expensive vacant land sales in Australian history.
Gavagna, who represented one or more of the bidders, believes that this could mark the beginning of more government land sales, but it remains to be seen whether more blocks will be sold at such a high price.
There has also been considerable work from the construction of new buildings to house government departments. The government has invested millions in various projects, because many of the buildings built in the 1970s have aged and now require refurbishment or replacement.
Meyer Vandenberg is very active in private sector property, commercial and litigation work. It acted for the builder of the Department of Health and Ageing’s new A$40m headquarters in the suburb of Woden. Clayton Utz acted for the department on the deal and recently advised the Walker Corporation on the construction of a new 40,000m2 building to house DEEWR.
Firms can expect the type of work they do to change, says John Weber, Canberra managing partner of Minter Ellison: “Many agencies have recently taken up new space which will result in government-related construction activity quietening down over the next 18 months. However, there is still strong demand for premium space, which is driven by government demand for green buildings.”
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AGS: LARGEST VOLUME OF GOVERNMENT WORK
In Canberra Australian Government Solicitor (AGS) undertakes the largest volume of government work. The government business enterprise, which until 1999 was a part of the Australian Attorney-General’s Department, operates more like a private firm on a national level.
AGS services three major areas including commercial law, litigation, major reform projects and government. Of its government work only about 5% is tied, however, it must compete for the rest of its tenders, just as any private firm would.
About 99% of its work is for the government and its agencies, according to AGS. There are some limits on its capacity to do work outside this area, but it can also carry out international, state and territory government work.
AGS arguably undertakes the largest volume of Commonwealth government work. It claims to have a presence on almost all government panels and generates about AU$120m in revenue nationally, 40% of which comes from the ACT.
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ATO
The Australian Tax Office (ATO) is a major user of legal services, mainly insolvency, secrecy provisions, commercial and interpretation of tax laws, including capital gains tax, fringe benefits tax, transfer pricing and employment.
ATO legal services panels mostly employ national firms for interstate work. There is a commercial law panel, which only has firms based in the ACT including AGS, Blake Dawson Waldron, Clayton Utz and Phillips Fox.
The Legal Services Branch in Canberra employs about 15 people.
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