The Law Society has suffered a £5m loss on a botched internal IT project to go with the £7m loss caused by failed conveyancing portal Veyo, it has emerged.
The combined cost wiped out the £12m surplus that the Law Society had otherwise recorded for the year to 31 July 2015, according to its newly published annual report. Income in that period was £124m.
The news came as it announced a 9% fall in the proposed practising certificate (PC) fee for 2016/17 to £290 – mainly thanks to the society dipping into its reserves.
According to the Solicitors Regulation Authority’s (SRA) section of the annual report, in 2013 the Law Society Group’s shared service function, Corporate Solutions, started work on replacing the core regulatory database with a more modern customer relationship management system.
The SRA said: “The project had been subject to technical difficulties and delays. Following the review of Corporate Solutions, responsibility for this project transferred directly to the SRA. We immediately commissioned a technical assessment to make sure the product met our needs.
“In light of this, we concluded that the proposed approach was not cost effective and would not provide the required functionality, and closed the project resulting in an impairment of the capitalised development costs [the £5.1m]…
“We have commissioned a review of the overall project and are undertaking a wider piece of work on our IT to improve its efficiency, effectiveness and stability.
The report also revealed that the review of Corporate Solutions led to its demise, with the Law Society and SRA each establishing their own administrative functions – such as finance, HR, facilities and project management – so as “to move away from the appearance of a third business within the group”. There will be an element of jointly managed shared services “remaining at the core”, however.
On Veyo, and the £7m write-off it caused, the report said: “As an organisation, we learned difficult but valuable lessons which will inform our approach in the future.”
On Friday the Law Society and SRA launched a consultation proposing that the individual PC fee fall £30 for the 2016-17 practising year.
The net funding requirement – what the Law Society Group needs to raise net of commercial income, projected at £15.3m, other regulatory income, recoveries and other income – was put at £104m. This is 73% of what the group expects to spend in 2016-17.
The SRA will take £53.5m of the 2016-17 income, down slightly from £54.1m in the current year, while the Law Society will take £35.3m under the ‘permitted purposes’ provisions of the Legal Services Act 2007 that allow it to levy solicitors for certain non-regulatory activities.
This is the same as last year, but the society has proposed meeting part of it by using £4.2m from its reserves.
Solicitors’ contribution to the costs of the Legal Services Board (LSB) and Legal Ombudsman is expected to fall by £1.2m to £12.6m, while the Solicitors Disciplinary Tribunal’s costs should remain static at £2.6m.
This all means that the Law Society Group needs to collect £99.8m from practising fees, £6m less than last year’s £105.8m.
In approving last year’s plans, the LSB was concerned that practising costs were not falling even though the SRA was spending less.
More recently, the LSB has changed its rules to require all the approved regulators to be more transparent about their costs, and the society’s chief executive, Catherine Dixon, said that this year it has published “much more information” about the work of the Law Society and SRA, and what money goes where.
Paul Philip, SRA chief executive, added: “Value for money, and transparency about how we use the profession’s money, is fundamental. I am pleased to be able to say that we have reduced the cost of our work very significantly since 2014 and we are committed to further reduction.
“This underpins our wider reform programme, reducing bureaucracy and costs and helping to address the affordability and accessibly of legal services for the public.”
Last year’s consultation found that solicitors did not consider that the PC fee provided value for money. This year’s consultation can be found here (scroll to the bottom) and the online survey for solicitors is here.