It's abandoned any idea, if it still existed, that "big is best". It still wants to do away with small firms. This time, its putting its money on "medium". That really is betting the house.

Nearly all of the "large firms" (which in reality means "medium sized enterprise") will have to downsize operations in their particular criminal justice area. They could try to offset this by bidding in another area, but few are currently equipped to do so.

The small firms are pretty much dead. Their only chance of survival is to merge, or form alliances with others (small, medium or large).

That leaves medium firms. MOJ estimates most will need to grow their businesses by 250%, and the capital investment they will need to make to "scale up" is significant. In any event, many medium sized firms will find themselves in the same position as the large ones: they will need to downsize operations in their immediate local area whilst gearing up to deliver over a much wider geographical spread. 

Running a law firm servicing the volume of cases envisaged by the proposals is a challenging undertaking:

First, there's the IT required. That's capital equipment and enterprise level case management and communications systems (few will currently have a system up to the job where you can just plug in more users). Factor in the unstoppable move to digital working and you are talking about a minimum investment of around the £500,000 mark. They could move to (or stay on) someone else's cloud, but their choices are currently limited (to 4 providers) because of the terms and conditions of CJSM (secure email). Spread over 3 years, the costs are likely to be the same, whether firms do it themselves or look for hosted solutions. In the recent years of ever diminishing returns, I doubt anyone has this level of capital available to them.        

Second, there's the management controls needed to deliver the quality of service being demanded under the LAA contract. There may be scope for some scrimping here because firms don't need to worry about the clients (who will have no choice and will have to "accept what they're given"), but even so there will be minimum contract standards that need to be monitored, reviewed and reported. This will be even more so if the enterprise is a new one born of a number of smaller providers. 

Third, for the firms downsizing there's the cost of the inevitable redundancy exercise that will ensue. For the firms who don't need to downsize, they're still going to need to reduce their trading expenses and fixed costs, which in effects means staffing costs. 

Fourth, all of this is being done in the context of a reduction of fee income of AT LEAST 17.5%.

 

Then there's the time required to implement these changes. No one's going to be able to afford to take the risk until they know they are one of the lucky 400. So that gives them three months to manage all this. Three months to hire in new staff, three months to make existing staff redundant, three months to install, test and get operational their new IT systems.  

What will the banks do? Will they think that lending to these types of organisations is an attractive prospect? For the firms who joined forces to act as a consortium, the risk of conflict as they each have to adapt their practices and procedures is huge. This alone may be enough to discourage lenders in such a fragile market.