Legal aid firms lack the financial expertise needed to meet the challenges presented by reforms such as best-value tendering, according to research published this week.

A study of financial management skills carried out for the Legal Services Commission by management consultant Andrew Otterburn shows that fewer than half the firms with legal aid incomes of more than £1m em­ploy an accountant, while only one-fifth of mid-sized firms do.

Otterburn’s study, carried out in advance of the introduction of best-value tendering, analysed the responses of 527 firms (16% of those with legal aid contracts).

He reports that partners in firms specialising in legal aid spend less time on management than those in more mixed practices. Likewise, financial management is generally weaker in firms that undertake high proportions of legal aid because they are unable to afford specialist financial staff.

Overall, Otterburn said firms have a good basic knowledge of their finances, but lack more in-depth knowledge and the ability to analyse their figures. Otterburn said his findings are ‘not intended as a criticism of these firms, rather as recognition that in an environment where margins are very tight, in order to survive all seemingly unnecessary expenditure is avoided’.

The LSC said: ‘The survey has crystalised the requirement of the provider base for support through the change process.’ A ‘provider readiness team’ has designed a training programme with the Law Society to meet needs identified in the report.

The Law Society said the report shows that firms are ill-prepared for best-value tendering. ‘Most legal aid firms do not have – because they have never needed – the skills and knowledge necessary to prepare economically rational bids,’ Richard Miller, the Society’s legal aid manager, said. ‘Lacking those skills, many firms may bid economically unviable rates in order to remain in the market. It serves to underline the dangers of market failure as a result of putting firms through a complex tendering process that is completely alien to them.’