Treasury spent £22m of taxpayers money on legal services. £1000/hr for each partner and 22,000 hrs!

[CliveH]

This just landed on my desk this morningfrom one of the "pinks":-

.........................

 

Treasury spent £22m on financial stability legal services

 

Nicola York - 24-Jun-2009

 

The LibDems have condemned the Treasury for paying City law firm Slaughter and May for these services saying the Government department are "babes in arms" when it comes to commercial contracts.

 

LibDem Treasury spokesman Lord Oakeshott says: “This payment is simply mind blowing. It comes to £175,000 for every single equity partner of the law firm.

 

“How can the Treasury defend allowing the firm to run up such an astronomical bill, the equivalent to 22,000 billable hours of partners’ time at £1,000 an hour?

 

“Even if the financial crisis meant that there was no time to shop around at the start for the best legal deal, the Treasury should then have driven a much harder bargain, not left them like a fleet of legal taxis in Whitehall with their meters running for months on end.

 

“The Treasury think they know it all, but they are babes in arms on commercial contracts

............................

 

So how do we all feel about the Civil Servants in the Treasury using our tax payers money to pay each and every Partner in a Law firm £1000 an hour for 22,000 hours?

 

"Babes in Arms" is not exactly what I would call it.

[GJH]

I would say that "Babes in Arms" is an understatement. It also applies throughout the public sector, not just to the Treasury.

 

I have no idea (apart from the FT article Here) what happened in this particular case but actually negotiating a contract with some companies can be a nightmare and then keeping them to that contract can be even worse.

 

When I first started work in local authority IT virtually all software was written in-house. Gradually, over the years, there was a shift to bought-in packages. Sometimes that was for very good reasons but in many cases it was a result of an apparent cost saving which turned out not to really exist - and the local authority contract negotiators were, it turned out, naive.

 

There were, and are, some very good software suppliers whose products and service cannot be faulted. However, others get up to wheezes like never actually getting round to developing extra features which they contracted to do and forcing upgrades by unilaterally and suddenly ending maintenance on the existing version, even though the contract provides for maintenance to continue. They get away with it because the cost to the (public sector) customer of fighting would be more than the cost of complying.

 

It can be even worse with things like "strategic partnership" and PFI contracts. Some of the larger companies employ lawyers specifically skilled in drawing up contracts which look OK on the face of it but turn out to be heavily biased in the company's favour when things go wrong. The public sector simply cannot afford to directly employ such specialised staff so, despite best efforts, find the wool pulled over their eyes.

 

The incident which most sickened me was to receive an e-mail which included a message from a senior manager to one of his staff

That is great. We have managed to shift responsibility for both completions from our people to theirs. Could you email an update to that effect to Graham. Many thanks.

The recipient inadvertently fowarded that bit to me instead of deleting it.

 

I totally agree that, in the case quoted, the payment is mind blowing. What I would really love to see is a full report into how the negotiations which led to the payment were conducted and where the contract terms which led to the payment arose.

 

I also note that the senior partner of the company is quoted by the FT as saying “Of course it’s a significant fee, and we fully appreciate that, but I don’t think that, given the huge amount of work we have done, it’s unreasonable.”. I'd like to see a detailed report of exactly what constituted that huge amount of work.

 

All contracts are two-way matters and, especially in a case like this, both sides should be able to justify in detail the benefit they gained from the contract and its reasonableness.

 

Graham

[GJH]

Another point just struck me.

 

The headline quoted (I presume from a hard copy paper) is "Treasury spent £22m on financial stability legal services" whilst in the FT on-line edition it is "Law firm earns £22m advising Treasury".

 

The first suggests that the Treasury has over-spent whilst the use of the word "earns" in the second suggests that the law firm has simply been able to land a large contract of appropriate value.

 

I wonder, are our reactions tainted by the headline? Would they be any different if the story were headlined "City law firm charges Treasury a whopping £22m"?

 

Graham

[CliveH]

Not sure the exact wording makes much diference Graham.

 

The FT on-line article does go onto say-

 

"The salvage operation for Britain’s banks may have cost the taxpayer billions of pounds, but it has proved a bonanza for Slaughter and May, one of the country’s biggest law firms."

 

But to my mind (and you could win another bet with yourself here (lol)) if one particular Government agency had done its job properly there would not have been the need for the £billion rescue or this subsequent £22Million spent of getting the legal i's dotted and the t's crossed when the banks had to be bailed out by the taxpayer.

 

The Adam Smith Institute calls the FSA "short sited" and "too preoccupied with form filling" to be of benefit as a champion of cunsumer rights. I agree.

 

Full article from the FTAdviser;-

 

Report faults 'short-sighted' FSA

 

David Pawsey Thursday , June 25, 2009

 

Regulators too preoccupied with "form-filling" failed to see the risk to the whole financial system in the build-up to the credit crunch, according to an economic thinktank.

 

In a 19-page response to the Turner Review, published by the Adam Smith Institute, two leading economic academics concluded that the financial crisis was not the failure of the regulations put in place but of the regulator overseeing them.

 

The authors of the report, Tim Ambler, a senior fellow of the London Business School, and Keith Boyfield, a senior fellow at the Adam Smith Institute, criticised the FSA for its self-obsession and failure to recognise that it was part of the problem, while the Bank of England " was part of the solution".

 

As a result both have called for the FSA to be streamlined.

 

The report, entitled Regulatory Myopia, said: "An FSA unable to deliver on its existing brief, or even to account for its performance, should not be rewarded by an increased remit. Rather, it should be diminished in scope to the point where its responsibilities match its capabilities."

 

Eamonn Butler, director of the Adam Smith Institute, said while the regulator was proposing to employ more regulators and introduce more checklists, it was guilty of ignoring bodies that could provide such information.

 

He said: "This response to those proposals argues that instead, we need better supervision of the risks being run by financial institutions, and the systemic risk in the sector as a whole.

 

"The FSA is not the right body to do this. Instead of being expanded, the FSA should be scaled back to what it can actually achieve, and more weight given to existing market-restraint structures, such as the Financial Reporting Council, and the Accounting Standards Board, and non-executive directors."

 

Heidi Ashley, spokesman for the FSA, said: "We have got an open consultation at the moment which is in on the Turner Review. It is not surprising that people are going to start publishing their individual responses but we do not comment on the individual responses we receive."

 

 

 

[CliveH]

This could make even me consider voting Conservative.8-) :-

 

The Conservatives plan to overhaul the tripartite system, giving the Bank of England overarching responsibility for the regulation of the UK's largest financial institutions and unwinding one of Gordon Brown's biggest reforms as Chancellor.

 

In what would be at least a partial reversion to the supervisory regime that existed prior to Labour's 1997 victory, the Tories would give the Bank significantly more power, pegging back the influence of the Financial Services Authority.

 

A spokesman for George Osborne, the shadow chancellor, said on Wednesday night that the Tories would soon publish plans to reform the system of City regulation. "What is clear is that the current system has failed and needs changing," the spokesman said.

 

Mr Osborne said that the existing carve-up of responsibilities between the Bank of England, the FSA and the Treasury "needs to be reformed", and foreshadowed a return to the central bank of regulatory powers stripped from it by Labour.

 

The Conservatives are likely to unveil their proposals after the Government releases its paper on financial industry reform, expected next week.

 

Among the main proposals, the paper is expected to recommend that banks restructure their operations to ensure they can be wound down at minimal cost to the taxpayer in the event of failure.

 

The Treasury has accepted that some banks will remain "too big to fail" but wants the flexibility to put non-essential divisions into administration , so reducing the burden on the state, while protecting depositors and financial stability.

 

Universal banks, those with both retail and investment banking operations, could be forced to "ring fence" their investment banking businesses, allowing them to be off-loaded or closed down if the bank faced collapse.

 

The British Bankers' Association on Wednesday sounded alarm bells over the proposal, warning that banks which were forced to reorganise their businesses might flee Britain.

 

"There is significant risk that if you force the larger banks to change their model they may find it is easier to be headquartered elsewhere," a spokesman for the BBA said.

 

She added: "There is value in the UK being able to maintain the mixed model that we have."

 

Political insiders, however, said the proposals only mirrored those already tabled by President Barack Obama in the US, which would be likely to set a precedent for all major financial centres and limit the scope for banks to move.

 

The Government is expected to release the "green paper" on banking reform, which is a consultative paper rather than a policy-setting white paper, next Wednesday, with the Tories likely to publish their response before Parliament goes into summer recess late in July.

 

Helen Brand, chief executive of the Association of Chartered Certified Accountants, said that it was important for governments to co-ordinate their approach to financial regulation to restore confidence in the markets.

 

[GJH]

As to the causes of the crisis (or, at least, the failure to recognise the problem in time to do something about it) the recent utterances of Darling, King & Turner seem to support the view that there are gaps in the current tripartite system which allow such problems to go unnoticed.

 

Another story in the news today is the report of the serious case review into the tragic deaths of two young children in Doncaster. That, too, illustrates the problems which can occur when responsibilities for different parts of an overall system are allocated to different bodies.

 

In both cases we have institutions which are creatures of statute and, thus, have to work within the restrictions of those statutes, as to do otherwise would be ultra vires. It is when the statutes are drawn up with insufficient emphasis on how the various institutions should communicate with each other and insufficient clarity on where authority actually lies that such gaps occur.

 

Given the differences of opinion expressed by the "3 wise men" (Darling King Turner, there's a frightening thought :-) ), not to mention Osborne, the Adam Smith Institute and the ACCA, we might to well to steer clear of their mire :-) I don't think either of us would wish to do battle over the FSA :-)

 

Returning to the thread topic, it just struck me that the differences in the headline approach of the two reports might influence our reaction to the question of how we feel about the deal.

 

Is it a case of Civil Servants in the Treasury using our tax payers money to pay each and every Partner in a Law firm £1000 an hour for 22,000 hours?

Or is it, perhaps, a case of a big law firm seeing a client in trouble and taking the opportunity to overcharge?

Or is it something in the middle of those extremes?

 

That is why I should like to see both sides justify the contract and spell out exactly what the Treasury received for its money.

 

Graham

[Guest Tracker]

Anyone expecting honesty, integrity, competence and culpability from either the government or a law firm is living in a land full of clouds and cuckoos and until those four words are re-introduced to the people with power nothing will change.

[GJH]

Tracker - 2009-06-25 5:43 PM

 

Anyone expecting honesty, integrity, competence and culpability from either the government or a law firm is living in a land full of clouds and cuckoos and until those four words are re-introduced to the people with power nothing will change.

Just noticed that the initial letters of those four words are hicc. As those in power are "above us" or "up" can we put all our troubles down to an attack of the hiccups? :D :D

 

Graham

[CliveH]

Apologies to all (especially Graham!!) for going back to my "hobby horse" but the issue is that prior to the FSA, it was the Treasury that outlined and oversaw Fiscal policy, the DTI that oversaw how financially strong the various financial companies and institutions were, and the Personal Investment Authority (PIA) that oversaw the activities of the various distribution methods (* see later note)

 

When this Government lumped all these three activities together (Gordon Browns idea when he was at Number 11) it all started to go wrong. First was Equitable life, for which even the Parliamentary Ombudsman has called for policyholders to be compensated for "A Decade of Regulatory Failure", and has blundered on ever since.

 

http://www.ombudsman.org.uk/pdfs/equitable_life_part_205_guide_and_summary.pdf

 

Since then there have been Split caps and various other "ball dropping", "asleep at the wheel" inactions by the "Super Regulator" the FSA. And while all this was going on we have had change upon change upon change, all very costly, all at the expense of the consumer and all akin to rearranging the deckchairs on the Titanic.

 

I do think the idea of going back to the original areas of responsibilities is a good one because so far the FSA has shown itself to be incapable of protecting the consumer which is its supposed main task!

 

Whatever you think of the Adam Smith Institute - I think it is clear from what has happened - the Banks with their greed have cost every consumer and tax payer a huge sum that will be with us for decades. And all this was done under the very nose of the FSA.

 

What is the next report going to be called? - "Another decade of regulatory failure" ??? :-S

...............

 

(* - Later Note - Only good thing the FSA inception did was to drag the Banks into a "proper" regulatory regime. They managed to convince the then Government (not this one the Thatcher/Major debacle) that Banks did not deal with "Investments" and so the PIA (Personal INVESTMENT Authority) was not an appropriate regulator for the Banks. And they got away with it.

 

So for years, the PIA did not regulate Mortgages and Mortgages only became regulated a few years ago when the FSA correctly changed the rules. So the Banks managed to convince the powers that be that Mortgages despite being the biggest financial commitment any of us make in general, were not regulated.

 

That meant that anyone getting advice on a £10 a week savings plan had to have a full fact find, Suitability report and Risk assessment. But you could take out a huge loan with no such checks.

 

Therefore it is not surprising perhaps that now the Banks ARE regulated, they represent circa 80% of all the complaints on the Financial Ombudsman’s desk.)

 

[GJH]

You've hit the nail squarely on the head there, Clive, when you say

When this Government lumped all these three activities together (Gordon Browns idea when he was at Number 11) it all started to go wrong.

 

As the House of Lords Economic Affairs Committee spelled out earlier this month, Brown's division of authority resulted in

inadequate definition of roles and responsibilities of the Bank of England, The Treasury and the Financial Services Authority (FSA) in the current Memorandum of Understanding on regulation of the financial sector.

Full report Here

 

Tracker mentioned honesty, integrity, competence and culpability yesterday. The one of those which governments (of whatever colour) cannot avoid is culpability. They can delegate authority but they can not delegate responsibility.

 

Gordon Brown, in his 11 years as Chancellor, had the responsibility of recognising and understanding what was going on in financial markets. Either:

1) he did realise what was going on, did nothing effective about it and kept the truth away from the public

or

2) as a result of the inadequacy of the way in which he set up the tripartite regime he didn't even realise what was going on.

Either way he failed and must bear that responsibility.

 

Graham

[CliveH]

At last!!!!

 

 

Full Agreement!! (lol) (lol) (lol) (lol)

[GJH]

CliveH - 2009-06-26 9:09 AM

 

At last!!!!

 

 

Full Agreement!! (lol) (lol) (lol) (lol)

 

Hurrah and Huzzah (lol) (lol) (lol) (lol)