Firm managing Central Beds Council's legal affairs runs up £3 million debt
PUBLISHED: 18:01 31 July 2018 | UPDATED: 18:11 31 July 2018
A debt of £3 million has been run up by a firm managing Central Bedfordshire's legal affairs.
The local authority became a one-third shareholder in LGSS Law Limited in April 2016.
Before then the council had an in-house legal team, a meeting of its audit committee heard yesterday. The council made a first year saving of nearly a quarter of a million pounds, after joining LGSS Law.
It had been hoped that £75,000 savings would be made in year two, but the initial calculation was based on a fixed amount of work. There was a £600,000 overspend on legal services in year two because of an increased workload, leading to a £285,000 deficit.
The extra costs would have affected the local authority anyway, and wasn’t a reflection of the efficiency of LGSS Law Limited, said the council’s chief finance officer Charles Warboys.
“Our in-house team wasn’t perfect, it wasn’t a perfect service, so it’s not to say we didn’t have issues when we had an in-house team.
“But we were hoping for more progress than perhaps was seen, certainly last year, in terms of service improvements.”
The running costs of the in-house team were £2.2m a year, the meeting heard, while about £800,000 annually was “outsourced to third party suppliers”. This was where there wasn’t sufficient capacity or skills to deal with the work, added Mr Warboys.
LGSS Law Limited was established by the county councils in Cambridgeshire and Northamptonshire.
The committee was told the firm has an annual turnover of £9m. “Nothing has been paid out as a dividend as yet,” said Mr Warboys.
When Central Beds Council opted into the firm, an agreement was struck over its dividend as the authority hadn’t paid for the costs of setting the firm up.
Mr Warboys said 10 per cent of the dividend due was payable in the first year, rising up to 100 per cent after five years.
Independent Potton councillor Adam Zerny referred to the potential dividends from the firm being mentioned in council meetings a lot before the switch from the in-house service.
He told the committee a £240,000 saving made in the first year was expected to be repeated every year over the first five years, resulting in a £1.2m windfall.
“We bought our way in by providing experienced staff we have,” said Mr Zerny.
“Some of the staff have left, so has our value in the LGSS Law Limited diminished?” he asked.
All the legal staff went across to LGSS Law Ltd from April 1, 2016, after the firm was successful in the tendering process, Mr Warboys explained.
The benefits potentially were attracting high-quality staff, economies for the council from the scale of the operation, and its greater resilience against staff sickness or annual leave.
Mr Warboys said: “The bulk of the work was around children’s services and adult social services, but it also covers planning law and property transactions.
“There was a significant increase in case load from children’s services.
“There were no more children going through [the system], but the court proceedings lengthened considerably. This meant there were more court hearings per child because of a change to the court procedures.
“So there were four or five appearances in court compared to two or three before.
“That accounts for around £400,000 of the £600,000 overspend on legal services.
“The other £200,000 went bringing work back in-house that went to third parties.”
Mr Warboys told the committee a service improvement plan has been developed with LGSS Law Limited. Some of the service issues included a higher than expected staff turnover, so a greater relience on locums, as well as a poor handover of some cases, which he described as “less than ideal”.
There have also been a lot of billing queries “which have taken up a lot of resource on our side”, he said. “The promising financial performance of the first year was not maintained in 2017/18.
“This year will be one of real consolidation before we look to expand.”
A new finance manager and an interim executive director have been appointed, according to Mr Warboys.
“The appointments were only made in June, so it’s early days,” he said.
Conservative Dunstable Watling councillor Nigel Young expressed his concerns,saying: “Northamptonshire County Council owes LGSS Law £2m, and they’re skint. I’d be really worried if a client owed me £2m.”
Mr Warboys said he could not answer for Northamptonshire County Council.
“It’s not cash flow that is the problem,” he said. “It’s not that they haven’t got the money to pay legitimate invoices. It’s more how they control their expenditure in the longer term.”
Asked by Conservative Ampthill councillor Paul Downing whether there was a plan B to bring its legal affairs back in-house, Mr Warboys replied: “No, we’re not actively considering that.”