Law firm founded to save councils money posts £1.2m loss
A law company set up by three councils to save money has warned of "uncertainties" that could threaten its future after posting a £1.2m loss.
LGSS Law is owned by three councils and was founded to offer a "new model" for public sector legal services.
Critics called the fall in revenue and £1.2m loss in 2018-19 a concern while an independent councillor questioned the scrutiny of outsourced services.
LGSS Law said its finances had improved and it expected a profit this year.
The law company is owned by Central Bedfordshire, Northamptonshire county and Cambridgeshire county councils.
Last year the BBC revealed Northamptonshire had offered the firm a £1m overdraft. It has now emerged Cambridgeshire has offered an extra £499,000 credit line.
LGSS Law's revenue in 2018-19 fell from £8.7m to £7.8m and its losses grew from £300,000 to £1.2m.
In its annual accounts, LGSS Law said: "The directors have a reasonable expectation that the company will continue in operational existence for the foreseeable future.
"However, the directors are aware of certain material uncertainties which may cause doubt on the company's ability to continue as a going concern."
'Reliant on shareholders'
It is understood these "uncertainties" include cash flow management and the financial issues in setting up the business.
The firm said it "continues to be reliant on the support of its shareholders in the firm in the form of loans, overdrafts and trade payable balances".
It said it was pursuing higher-margin lines of business, increasing the efficiency of its fee-earning lawyers and increasing its headcount "in response to higher workload volumes".
Adam Zerny, leader of the Independent group on Central Bedfordshire Council, said: "It is a real concern to see losses at LGSS Law rise to £1.2m, especially when this represents 15% of the company's turnover.
"I have significant concerns about outsourcing to a third party which cannot be scrutinised in the same way a local authority can. I remain strongly opposed to legal services being outsourced."
Northamptonshire County Council - twice forced to stop all non-essential spending in 2018 - said it offered the 1.62% per annum overdraft, of which £950,000 has been used, to help the firm's cash flow.
It is understood £375,000 of the Cambridgeshire overdraft has been drawn down.
A Cambridgeshire council spokeswoman said: "The purpose of the overdraft facility is to provide a working capital to ensure the law firm avoids any cash flow difficulty in the 'lag' between work, billing and receipt of payment."
Debbie Carter-Hughes, executive director at LGSS Law, said the latest accounts were out of date, adding "the firm has made significant changes to its financial position" and was "forecasting a profit for the end of the financial year".
A spokeswoman for Central Bedfordshire said: "The council can see the benefits of legal services being provided through LGSS Law in a more efficient manner and with much greater resilience than could have been achieved in-house."