Council law firm makes £575,000 loss after costly IT meltdown

One of the flagbearers for local authorities setting up law firms suffered pre-tax losses of more than £575,000 last year, newly-published accounts have revealed.

Pathfinder Legal Services, a joint venture by councils in Cambridgeshire and Bedfordshire, reported that a ‘significant external IT issue’ had cost the company around £500,000.

It is understood that the losses for 2023/24 are largely covered by cumulative retained profits from previous years, so neither council will have to dip into taxpayer money. But the financial results are a blow for a entity which models itself on under-cutting privately-owned law firms and was intended to deliver profits for cash-strapped local authorities.

The accounts for the year to March 2024 show that turnover fell marginally to £11.7m, while cash reserves more than halved to £340,000. Amounts owed within one year rose from £1.7m to £2.9m and net assets fell by 24% to £1.4m.

The firm was created as LGSS Law in 2015 as a shared service between Cambridgeshire and Northamptonshire councils. Central Bedfordshire was added a year later. The business changed its name to Pathfinder Legal in 2021.

The accounts reveal that Northamptonshire (since split into two authorities) left the business at the end of 2023, with the exit dealt with ‘in a managed way with no adverse impact on the finances of the company’.

The SRA-regulated firm has denied trying to compete with private practices but in his strategic report attached to the annual accounts, chief executive Andrew Shufflebotham says the company ‘aims to charge lower legal fees than other private sector options and to recruit high-quality lawyers’. He adds: ‘The model developed by the company continues to draw on elements of a commercial "private practice" model in its performance and business-like culture/processes, but retains key elements of an in-house legal team.’

The IT outage occurred in October 2023 and had a ‘lasting impact’ on the ability of fee earners to record chargeable time properly. This continued until a change of system in February 2024 which should avoid any repeat of such a costly IT failure.

Shufflebotham said the firm, which employs 163 people, continues to deal with large volumes of work and has seen a particular increase in social care instructions. There has also been a rise in new external clients and this side of the business will expand in the future.

He told the Gazette: ‘During the year financial year 2023/24 the company went through significant changes and dealt with a number of exceptional and largely external circumstances which impacted on financial performance. These issues have now been addressed, and we continue to have a positive working relationship with our shareholders. Looking forward, the company continues to trade well and we fully expect to report a profit for the financial year 2024/25.’