Legal firm paid more than double agreed advisory fees, report shows

LEGAL FIRM Arthur Cox was paid more than double the fees it was contracted to receive from the National Asset Management Agency (Nama), according to a report by the Office of the Comptroller and Auditor General (CAG) John Buckley.

Nama awarded a contract for legal advisory services to Arthur Cox in June 2009 for a fixed fee of €200,000. This was to cover the period up until the end of September 2009, while a monthly fixed fee of €40,000 was to be paid thereafter.

The contract was awarded to Arthur Cox at this price after Nama had asked the three firms who obtained the highest scores under the tender process to reduce their proposed fixed fees.

The Nama tender evaluation group had found that “the range of fixed fees was far greater than it would have expected”.

However, Arthur Cox later charged fees that matched its original fee proposal of a fixed fee of €480,000 for services up until the end of September 2009.

It charged €150,000 a month thereafter until November 12th, when the Nama Act was passed, at which point the charge reverted to the contracted €40,000 per month.

Arthur Cox charged the fees in a single invoice in December 2009 and was paid by the State agency, the CAG report states.

The legal firm said the fees agreed under its contract with Nama were based on an “understatement of the time and resources required by the project”.

However, the contract between Arthur Cox and the National Treasury Management Agency (NTMA), which acted on behalf of Nama, did not state the number of hours’ work upon which the fee was based, the CAG noted.

Arthur Cox argued that the nature of the project had expanded to include the development of the Nama Bill, the issuing of a draft version of the Bill for public consultation, an extended parliamentary process for its passing and more intense engagement with the Attorney General’s Office, among other factors.

The fees proposed were based on 775 partner hours at a discounted rate of €470 per hour and 425 associate hours at a discounted rate of €290 per hour. The total (€487,500) was rounded down to €480,000. The discount granted to the State on these fees was 10 per cent off Arthur Cox’s normal hourly rates.

In correspondence with Nama, Arthur Cox justified its higher charges by stating that the time recorded on its system for work it had performed on the development of the Nama legislation actually added up to fees of €844,062, based on its normal hourly rates.

Despite the running up of a higher bill by the State, Arthur Cox said it would limit its fees to its original fee proposal in light of the current economic environment, the CAG indicates.

Arthur Cox claimed the time of its managing director was not recorded on the system and that “many others on the team either stopped recording time or under-recorded time as they knew it would not be billed”, the report states.

The NTMA also signed a 13-week consultancy contract with PricewaterhouseCoopers in January of this year worth €1.9 million, under which PwC was contracted to assist the agency with its set-up phase. A third contract with PwC was signed in April, with four PwC personnel contracted to Nama at a cost of €60,000 per week. Since June, these staff have been retained at a cost of €40,000 per week, excluding VAT.

In March, Nama also contracted Deloitte to provide five personnel on secondment for eight weeks to assist on the business plans and credit requests of borrowers. This gave rise to a cost of €220,000.