Law firms will continue to fall by the wayside as competition for Commonwealth Government work heats up, according to the head of Australia’s longest established private practice Government division.

In response to last week’s highly-anticipated release of findings of an independent review into the spending habits of agencies between 1998 and 2002, Minter Ellison Government head Russell Miller flagged further bloodshed in the tight market that farewelled top-tier rival Freehills less than 12 months ago.

“I still think that there is further shake-out of this market to come,” he said. “Departments will try a range of firms and find some are not as committed to Government work as others.”

Along with the Australian Government Solicitor (AGS), which the report found still maintains a lion’s share of all work, Miller estimated that private practice contenders would be whittled down to “three or four firms” in the future.

His opposite at Phillips Fox, Malcolm Shelton-Agar, agreed, nominating Minters, Claytons Utz, Blake Dawson Waldron and his own team as the ones to watch.

“I initially thought it was those four firms, but didn’t have the benefit of the report,” Shelton-Agar said. “It [the report] has in fact shown the anecdotal evidence to be right.”

According to the study, agencies primarily called on the assistance of 11 firms in 2001-02. However, only eight — Freehills included — held a place on panels, which are widely acknowledged to be maintained by the largest and most lucrative agencies.

“I don’t regard the number of agencies firms act for as the important statistic,” Miller said. “It is the amount of work we do for large Commonwealth panels that is important.”

The AGS topped both panel and agency numbers, although the quartet of firms nominated by Shelton-Agar — along with Mallesons Stephen Jaques — made up some ground over the four years reviewed.

Shelton-Agar, who admitted to over-estimating the “maturity” of the eight year-old Commonwealth Government market, felt further inroads would be made.

“In 1995 [when the Government began outsourcing legal work], I suspect the AGS had all the work. Now they appear to have about half. With the market perhaps not as mature as I first thought, I believe there may be some more slippage to come before things settle.”

AGS chief executive Rayne de Gruchy was satisfied with the Government Solicitor’s performance when contacted by Lawyers Weekly for comment. Asked if a trio of high-profile poachings, namely Peter Gosling, Andrew Miles and Richard Silver, from private practice in 2002 was an indirect acknowledgement of the growing external threat, she said: “It’s not a compliment at all. We need to constantly grow our business to provide the right service with the right talent. We haven’t deliberately targeted anyone.”

None interviewed expressed surprise at the $242.97 million legal spend arrived at by the study for 2001-02. Shelton-Agar believed the figure to be “a bit rubbery” because of the inability of many of the 170 agencies questioned to reply in full (see story opposite).

Litigation was by far and away the most fertile area for private practice, with $45.4 million being spent in 2000-01 alone. Alternatively, only $1.5 million was spent on alternative dispute resolution (ADR) in that year, despite agencies being bound by the Legal Services Directions (LSDs) which endeavour to avoid court proceedings “wherever possible”.

A spokeswoman for former Attorney-General Daryl Williams, whose department commissioned the review, said much of the litigation spend related to actions “commenced by other parties who may not be willing to consider ADR.”

But she added that a current review of the LSDs would “consider whether there is any need to make more explicit the requirement that agencies should actively consider ADR as an option for dispute resolution.”