U.S. Treasury Receiving Bargain-Basement Rates for Bailout Advice
Simpson, Thacher and Bartlett, the firm selected by the Treasury Department to advise the government on the $700 billion bailout plan, will collect an average of $113/hour for its service, with its total fee capped at $300,000, reports The New York Times' Dealbook Blog. And no, that's not a typo -- Simpson Thacher is apparently taking a huge pay cut from the $1000/hour billing rates that were all the rage at some top law firms last summer.
According to the Treasury's contract with Simpson Thacher (which you can view either here or here) the law firm will receive $300,000 to advise Treasury on the $700 billion bailout plan. Don't assume that this is some kind of value billing price, where Simpson can make up the lower cost on increased efficiency. No, Simpson Thacher will take a bath on its hourly rates as well. On page 5 of the contract, Simpson estimates that the work, which will take place over a six-month period, will involve 564 hours of partner time, 1,692 hours of associate time and 376 hours for of counsel work, for a total of 1,632 lawyer hours that, spread over the $300,000 budget, amounts to an average lawyer rate of $113.98 an hour (there are also 1,128 hours allocated for legal assistants, which I didn't include in my calculation). And while the contract does permit Simpson Thacher to submit a change order if the costs of performance exceed its estimate, I'm not sure how that would work in practice. After all, based on the hourly estimate and the going rate for large-firm lawyers, which start at the $300/hour range, Simpson's estimate already well exceeds the cap.
So was it rate caps rather than anticipated conflicts of interest that lead four other large firms to decline Treasury's request to participate in the procurement? And did Simpson Thacher accept the Treasury contract to fulfill a civic duty for the country in a time of crisis, or because the contract makes for good PR and may help the firm position itself for work in a post-bailout world?
As for me, Simpson's motives don't matter. From my perspective, it's nice to see that besides oil prices, other prices such as legal fees may start falling, particularly in this case, when I, as a taxpayer will ultimately foot the bill.
Posted by Carolyn Elefant on October 17, 2008 at 05:54 PM | Permalink
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