This is Exactly Why I Give Up on Michissip...I Mean Michigan

[michimoby]

I used to work for a Big 3 consultancy, so these numbers don't surprise me in the least. In fact, they seem a bit low in comparison to the numbers we usually billed at, especially at the senior level.

However, for clients in the public and non-profit sectors, we often took projects on a pro-bono/low-bono basis in order to facilitate the same level of impact at a lower landed cost to the client. We also were much more cognizant of our auxiliary budget [[e.g., We tried to staff an all-local team to save money on airfare). I know that this was the case for a particularly high-profile project our firm was staffed on [[I could go into detail, but that would out me. ).

So, I do look at these numbers being projected and get a little bit nervous that the junior associates are being billed at a relatively high rate for a public sector client [[esp. one that's insolvent). However, I'm going to go out on a limb and assume that the team is top heavy -- if they're getting senior partners at that rate, this is actually a pretty good bargain. [[Comparison point: the senior partner on one of my cases was being billed out on a four-figure rate per hour.)

[corktownyuppie]

Don't you understand? Money manipulators are SMARTER and WORK HARDER than the rest of us!

I know it's not nearly as sexy a profession, or apparently as useful, but I know consulting engineers with 30 years experience who don't bill at $275 an hour. But this kid, whose feet are barely wet, can justify that rate for grunt work?

Just goes to show you where we are as a culture/society/economy, where bean counters are treated like rock stars, while the people who actually MAKE THINGS are expected to make concession after concession in their wages and benefits.

It's nothing personal against Mr. Johnston. But damn, if this is the "cheap" guy on the team.... Smells like profiteering to me: Socialize the losses, privatize the profits.

I guess I'm annoyed because no one seems to comparing the right numbers. Union head is pissed because associate bills at $275/hr while employees only make $20 per hour. Ok, we'll first problem is that you are comparing a billing rate to a wage, which are two totally different numbers, but that's beside the point. This is like trying to compare President Obama's salary to Miguel Cabrera's compensation per plate appearance against a hospital janitor's hourly rate. The three numbers might be interesting, but changing one doesn't affect any of the others.

Cutting this consultant's pay in half doesn't somehow increase a policeman's salary, for example. The numbers are unrelated.

The other problem is that too many people are angry but don't really understand who to be angry at. So out of either desperation or ignorance or both, they just pick someone they perceive to be highly paid without even knowing whose side he or she is really on.

As mentioned above, the bankruptcy filing is designed to inject more money INTO the city, not out of it. And if you want to eliminate $5 Billion in debt, paying $5 Million in fees is a really small price to pay, for example. None of the money that will be saved can be injected into the city while uncertainty about the bankruptcy is high, and that will need to be litigated.

So if you're pissed about how much we are paying to Jones Day and Conway, don't blame them or the city. Blame the creditors who are fighting the bankruptcy.

You want a quick and easy way to not have to pay all of these fees? Find a time machine. Go back to 2010. Get all the creditors, unions, and retirees to be willing to accept and eat the costs of restructuring while also forgiving the debt. VOILA! You just saved millions in consulting fees.

People will need to have some hard conversations about how we prioritize the following:

city services for current residents
future access to credit [[both local and state)
cultural assets
wages and benefits for less than .5% of the city population
retiree benefits
Local control
Income inequality and its consequences
And more

I'm willing to engage in serious, thoughtful debate about how we prioritize the above going forward, even if we initially disagree. But to point at some insignificant data point about how one person bills too much while 100 people get laid off? Thats just lazy thinking.

You can argue that spending $5 million to save $5 billion is a bad investment. Fine. Then propose a better option.

Years ago everyone warned about the high costs of litigating a bankruptcy instead of working it out ourselves. We all knew this was coming. This is gonna be a messy, expensive divorce. And instead of bitching about the cost of the divorce attorneys, we can end this at ANYTIME, by having all parties just agree to a settlement out of court.

[mwilbert]

As has been said, gigantic markups are the bread-and-butter of the consulting business, and this analyst is probably making 25%-30% of what is being billed at most.

What you can do if you think an underqualified person is being put into an expensive slot is ask the consulting company to reclassify the position; I have no idea what is in this contract, but, for example, you might change his slot from financial analyst to research assistant, and probably downsize the rate to $125-150/hr or so. If they refuse, you can usually insist that they use a different person, which probably they won't want to do.

But the underlying fact is that hiring name-brand consultants is expensive, and Detroit is in a position where it needs to do that.

[Zug]

The way consultancy fees work is completely misrepresented by the article [[as stated by many others). But even despite that...my biggest problem is that those in an uproar over this are knocking this kid without any evidence. If you can point to him doing poorly, then that would be great support against the fee. But just saying he's inexperienced is not a valid argument, in my opinion. At least show that his hiring by the firm was due to nepotism or something.

I'm not saying that he is worth the rate the city's paying. I'm saying that I don't know if he's worth it...and neither does anyone else outside of the people he works with. I just need to see evidence that he's not worth the cost before I go running with a pitchfork to the firm's offices.

[Hermod]

And how much money did the city pay the coffee-stirrers, no-shows, and incompetents that screwed up the finances in the first place?

[Eber Brock Ward]

As has been said, gigantic markups are the bread-and-butter of the consulting business, and this analyst is probably making 25%-30% of what is being billed at most.

What you can do if you think an underqualified person is being put into an expensive slot is ask the consulting company to reclassify the position; I have no idea what is in this contract, but, for example, you might change his slot from financial analyst to research assistant, and probably downsize the rate to $125-150/hr or so. If they refuse, you can usually insist that they use a different person, which probably they won't want to do.

But the underlying fact is that hiring name-brand consultants is expensive, and Detroit is in a position where it needs to do that.

Rule of thumb for large professional organizations is 1/3 to the talent, 1/3 to overhead, and 1/3 to the partnership.

If the associate is making 25-30% of that, it's not totally out of line with that.

[ghettopalmetto]

Rule of thumb for large professional organizations is 1/3 to the talent, 1/3 to overhead, and 1/3 to the partnership.

If the associate is making 25-30% of that, it's not totally out of line with that.

Yeah. Because $170,000 a year is a perfectly normal salary for someone with no experience in anything. The only reason these firms charge these fees is because they CAN--and Detroit is all-too-willing to pay them.

[corktownyuppie]

Yeah. Because $170,000 a year is a perfectly normal salary for someone with no experience in anything. The only reason these firms charge these fees is because they CAN--and Detroit is all-too-willing to pay them.

Am I misunderstanding something? I thought the hourly rate in the article was fixed across the board, regardless of level or seniority. Which means this guy bills at $275, but then so does the senior partner with a JD/MBA.

If that's true, then:

1) there is no way to conclude that this guy is making $175k per year
2) you can't look at this number independent of the senior partner number, ie [[highly overpaid young associate only occurred in conjunction with highly underpaid senior partner)

[ghettopalmetto]

Am I misunderstanding something? I thought the hourly rate in the article was fixed across the board, regardless of level or seniority. Which means this guy bills at $275, but then so does the senior partner with a JD/MBA.

If that's true, then:

1) there is no way to conclude that this guy is making $175k per year
2) you can't look at this number independent of the senior partner number, ie [[highly overpaid young associate only occurred in conjunction with highly underpaid senior partner)

Well, based on the invoice shown in the link, there is no $275/hr flat-rate. The [[presumably) senior people are billing at $425 and $495 an hour. It's kind of hard to tell what's going on, though, since the City is receiving a $280,000 invoice, and there aren't any titles/classifications or even a description of services rendered.

Ironic that an entity in bankruptcy due in part to wasteful and unaccounted spending is agreeing to accept invoices without documentation of the actual services provided. This kid who billed 90+ hours at $275/hr for the two-week period [[not to mention the other folks on the invoice): What is the City getting for that? How does anyone know they're not just milking the contract?

Looks more like a ransom note than an invoice, if you ask me.

[Novine]

"Mr. Orr's plan to invest an additional $125 million into services [[average per year for the next decade) is real but also depends upon His Honor's acquiescence."

Services? 40% of that is going to "blight" activities, which means more money for the demolition firms. If Orr gets his way, it's going to be the motherlode for the demolition firms. Orr will do his best to bulldoze away the city while there's apparently no money to invest back into neighborhoods that could benefit from $500 million in new infrastructure, upgraded parks, repaired streets, etc.

[Eber Brock Ward]

Yeah. Because $170,000 a year is a perfectly normal salary for someone with no experience in anything. The only reason these firms charge these fees is because they CAN--and Detroit is all-too-willing to pay them.

I would guess that the analyst makes $90k-$110k a year, which isn't unreasonable for a star from a solid business program.

As far as I know, Conway is pretty good, and the analyst's alternatives were probably at bulge bracket firms, where he'd get a base around $70-75k and a bonus of around $40k, give or take $10-20k.

So in order to get the talent, Conway has to pay, and that, in turn, is passed on to the clients.

I'm just happy to see that the city finally has top-flight consultants on board. It was nice to see how Jones Day schooled everyone up in Ingham County with the bankruptcy filing, and it'll be nice to see Conway do the same here. Simply put, they need to do a good job to justify their fees on an ongoing basis, so every "i" will be dotted and "t" crossed.

Too often folks get penny-wise and pound foolish because they're too worried about optics.

[ghettopalmetto]

I'm just happy to see that the city finally has top-flight consultants on board. It was nice to see how Jones Day schooled everyone up in Ingham County with the bankruptcy filing, and it'll be nice to see Conway do the same here. Simply put, they need to do a good job to justify their fees on an ongoing basis, so every "i" will be dotted and "t" crossed.

Too often folks get penny-wise and pound foolish because they're too worried about optics.

As a professional myself, I completely understand the concept of "You get what you pay for". And I have made no commentary as to the competency of Conway.

But sending an invoice that amounts to, "Give us money" without documenting the actual work done for those hours... That is hardly dotting "i"s and crossing "t"s.

[Eber Brock Ward]

As a professional myself, I completely understand the concept of "You get what you pay for". And I have made no commentary as to the competency of Conway.

But sending an invoice that amounts to, "Give us money" without documenting the actual work done for those hours... That is hardly dotting "i"s and crossing "t"s.

Totally fair criticism. Since I've come on board where I am now, we have made it clear to our outside professionals that we will not tolerate -- or pay for -- block billing. And once received, we have folks go over the invoices with a fine-tooth comb.

But that is a separate issue from the one that has folks up in arms, that being the rates that are being paid for the services, particularly the young MSU grad's rate. Conway has to pay for the talent and get paid for having the talent. Those rates are eminently reasonable for a good consulting/professional team.

[iheartthed]

What a poorly written article. Somebody obviously has no idea how the consulting business works. That kid isn't making anywhere near $275/hr, nor is he the one billing it from the city.

He's an employee of a consulting firm that is billing the city that amount for his services - and, it seems, is also billing much more for the services of several other, apparently more experienced, people. The firm is charging for access to professional people they have theoretically vetted and trained. But unless those people are partners in the firm, most of that billed rate is not going to them personally, but straight into the firm's coffers to pay for expenses and the partners' share of the profits.

The unions' anger also seems misplaced. Again, perhaps because of a misunderstanding of how that business works. They really shouldn't be singling out this guy over what the city's paying his company for him. But they should be objecting to the huge amount these "services" are costing a purportedly broke city that can't even afford to keep lights on, police and fire depts. staffed, or its pension obligations funded. And the amount of padding involved for the firm's profit margin, way over and above what the individuals are actually paid for their work.

Yeah, this is much ado about nothing. I work for a consulting firm that provides similar services and $275/hr is actually below industry median for that level. It was not a well written article at all. And no, all of the money doesn't go directly to his salary. His employer also has to pay medical, dental, retirement benefits, provide equipment, etc., which is factored into the hourly rate.

ETA: His managers probably bill at twice his rate but don't contribute twice as much productivity...

[DTWflyer]

Consultants are not 100% billable every day, every hour of the year. They have a decent percentage of non-billable time between projects, when they are in training, when they take time off, when working on business development. So that factors into the equation of salary vs bill rate. Trust me, this recent grad is likely making around $70-$80k per year. He most certainly is not making $170K/year. He is also likely working 60-70 hour work weeks.
Part of the benefit of consultants is that they can be brought in rather quickly. It would be impossible to attract such talent if you had to go through the job posting, interviews, recruiting process and assemble a functional, reliable team.

I highly doubt this is the only documentation associated with their work. What you likely do not see is all of the Financial Models, Powerpoint decks, and meetings that likely Mr. Orr is reviewing on a near daily basis. He likely knows what this team is doing and how they are supporting the restructuring effort. In that case, the invoice is really just a formality for payment at that point.

[iheartthed]

In that case, the invoice is really just a formality for payment at that point.

The firm has to submit the invoice in order to get paid. Most likely there is a stipulation in the contract for the engagement that details how quickly the invoices need to be submitted for payment. And since this is a bankruptcy all invoices are public record and filed with the court. It's pretty hilarious that they're trying to pass this off as if they had to do some actual work to get this "news" story. They had the story written from the moment they knew Detroit was entering bankruptcy...

[MikeM]

Doesn't the U.S. Trustee have to approve these fees at some point?

[Det_ard]

Conway MacKenzie's charges are typical, perhaps low, for a turnaround or BK consultancy. Try finding a good one for less. Junior associates bill out at numbers that look amazing, which really helps make the story thanks to ignorant reporters, editors and readers.

If anyone is envious of what analysts at consulting companies or I-banks make realize that they're often working 70 - 80 hour weeks and living out of a suitcase. Not all the 70 or 80 hours get billed either. I worked two consecutive 100+ hour weeks once on a project in Asia but we only billed 40 each week. That's just part of the job. And in some firms it's up or out. Get promoted or get fired. Most get fired.

The union complainers wouldn't last two minutes in that environment.

[Wesley Mouch]

...The union complainers wouldn't last two minutes in that environment.

Wonder what GM would charge the City of Detroit for a unionized skilled trades worker?

[LeannaM]

What a poorly written article. Somebody obviously has no idea how the consulting business works. That kid isn't making anywhere near $275/hr, nor is he the one billing it from the city.

He's an employee of a consulting firm that is billing the city that amount for his services - and, it seems, is also billing much more for the services of several other, apparently more experienced, people. The firm is charging for access to professional people they have theoretically vetted and trained. But unless those people are partners in the firm, most of that billed rate is not going to them personally, but straight into the firm's coffers to pay for expenses and the partners' share of the profits.

The unions' anger also seems misplaced. Again, perhaps because of a misunderstanding of how that business works. They really shouldn't be singling out this guy over what the city's paying his company for him. But they should be objecting to the huge amount these "services" are costing a purportedly broke city that can't even afford to keep lights on, police and fire depts. staffed, or its pension obligations funded. And the amount of padding involved for the firm's profit margin, way over and above what the individuals are actually paid for their work.

Seems fair to me. Perhaps the firm should be chastised for charging so much or the city should have shopped around more. Not necessarily the analyst's fault.

I'm 23 and look 15. I'm still in college, but once I graduate with my teaching degree in a year I expect people to think I don't know what I'm doing. That kind of comes with the territory being fresh out of college. I assume it's worse in a high-skill, high-pressure, high-income career in finance. Still, being young doesn't mean he's incapable. Everybody has to start somewhere. And he is part of a team working on this, right? So I don't have a problem with his age.

[Honky Tonk]

Wonder what GM would charge the City of Detroit for a unionized skilled trades worker?

There would have to be several. You know, one to open the book, one to look @ the numbers, one to write them down, one to sharpen the pencil, etc., etc., etc.,

[Locke09]

There would have to be several. You know, one to open the book, one to look @ the numbers, one to write them down, one to sharpen the pencil, etc., etc., etc.,

Actually, that's how consultants work. I've managed many major projects in my career and the unions have nothing on consulting firms when it comes to having a large number of people/positions to complete a work product.

Where the City might have one employee collecting their own data, analyzing it and producing a report based on their findings, a consulting firm will have at minimum 3 different people assigned to this. Then you'll also have to pay for someone in their company to approve what they are submitting, and they will have to get the data from a city employee anyway. That's what companies like Conway Mackenzie do.

They are billing $275 an hour for the guy who probably collects data and reports from the city employees and probably asks the city employees to extract the data in Excel format so he doesn't have to populate his own spreadsheets.

No matter how people try to justify this, or make claims about what is happening in the financial consulting industry, the good thing about the Internet is that it makes research very easy and the research shows that the highest 10% of financial analysts with that same pedigree make about $75,000. Add 30% for those in Connecticut, where they make the most. He is likely making less than 20% of what they are billing for him.

Every extra penny the City saves by scrutinizing costs is a penny that can go towards services.

[trstar]

The usual "consultant" scam. The sell you with the experienced team, but hand you the "rookies" so they can cut their teeth while being "supervised" by a single manager.

[Cliffy]

Actually, that's how consultants work. I've managed many major projects in my career and the unions have nothing on consulting firms when it comes to having a large number of people/positions to complete a work product.

Where the City might have one employee collecting their own data, analyzing it and producing a report based on their findings, a consulting firm will have at minimum 3 different people assigned to this. Then you'll also have to pay for someone in their company to approve what they are submitting, and they will have to get the data from a city employee anyway. That's what companies like Conway Mackenzie do.

They are billing $275 an hour for the guy who probably collects data and reports from the city employees and probably asks the city employees to extract the data in Excel format so he doesn't have to populate his own spreadsheets.

No matter how people try to justify this, or make claims about what is happening in the financial consulting industry, the good thing about the Internet is that it makes research very easy and the research shows that the highest 10% of financial analysts with that same pedigree make about $75,000. Add 30% for those in Connecticut, where they make the most. He is likely making less than 20% of what they are billing for him.

Every extra penny the City saves by scrutinizing costs is a penny that can go towards services.

Exactly. People in here just don't get it. They are hell bent on attacking the little guy making $18 hour driving a DDOT bus or picking up the garbage. Oh my god he has a college degree and he deserves $275 hour but I have no clue what the hell he does but the democrats caused this mess and they hired coffee stirrers. Wake the fuck up. The financial industry that has fucked up this whole world is stealing from you and you're sitting there and nodding your head in approval.

The biggest scam out there is consultants and not only that, they are totally clueless and whenever a big decision is to be made, they revert back to whoever is managing them to make the decision. The state should hire financial analysts and use them for all these takeovers. It would save all of us money. Not these scammers from NYC who are billing the max every 2 weeks and nobody knows what the hell they are doing.

[sumas]

Sigh! I guess I am happy someone has a job.