NAMA and competitiveness

John McManus has an article today in which he points out that NAMA has the potential to raise the prices of legal and other professional fees by boosting demand for the providers of those services. He also points out that this will be bad for competitiveness. (And, one might add, for the fraying social fabric of this country.)

I would be interested to know how big such an effect might be: in other words, how many professionals in various categories will NAMA hire, relative to market supply?

I agree with McManus when he says that the state should limit the damage, by capping the fees it pays to such people. But it is hard to see how it could actually succeed in ‘driving down professional fees via NAMA’ through such a strategy, since according to McManus NAMA is adding to total demand in the sector.

39 replies on “NAMA and competitiveness”

Why not hire a few thousand on 3 year contracts from the ranks of the unemployed….Pay them the average industrial wage, put them to work. create a incentive structure around performing their roles… with targets for saving of taxpayer money or collecting loans….

I mean why not…. adopt a policy of NOT hiring from firm that have conflict of interest i.e. existing clients looking to get into NAMA….

Hire a few dozen external (preferably German) overseers….. to stop corruption….

The effect of trying to put a floor under property prices and rents will to do far more damage to the economy.

It raises the question about whether NAMA fees will be viewed in the future the way fees for Tribunal barristers are now.

It is an excellent issue to raise at this time, as it is the perfect time to address the problem.

Part of the problem on legal fees relates to the chokepoint at entry. Do m’learned friends not think it odd that one can study for the New York State Bar at and as one wishes, while to get the opportunity to dress up in court dress with added horsehair here one has to go through a strange apprenticeship more fitting to early dickens?
How about this : the state to set two exams per annum, minimal exam fees, anyone who passes is legally licensed. Then let the market decide who wants to specialise in pleas and whom in other areas. Oh, and let em advertise too.

If we assume that half the €2.4 billion is related to fees and that fee rates can be kept to €1,000 a day, then the advisor input would amount to 1.2 million fee days over the ten years. This equates to about 480 man-years per year throughout the ten years and contrasts with under a hundred staff in Nama itself.

This raises the question of management risk. For Nama to succeed, its resources and expertise must be appropriate to one of the largest property portfolios in the world. This means experience of world-scale asset recovery and portfolio management. According to its plan, Nama’s inhouse staff of under a hundred people people will be managing a highly fragmented, complex portfolio worth €77 billion covering 20,500 loans linked to almost 2,000 developers’ business plans as well as supervise hundreds of advisors. Surely, the proposed approach to staffing of Nama is penny wise and pounds foolish and places the outcome of Nama at great risk. Instead of paying fees, Nama’s staff could be greatly expanded with well-motivated and -supervised staff on medium term contracts and at much lower cost.

Here are some things that spring to my mind, for your interest.

Off the top of my head, I know professionals like architects and engineers are suspicious about NAMA for one simple reason. They fear that their traditional client base is going to become more cautious about doing any projects in future. NAMA seems to add an additional variable of risk and unknown, to what is already a risky and unknown occupation, that of property speculation and development. The traditional builder or developer is now competing head to head with NAMA it seems. In other words, if NAMA comes to town, the traditional builder or developer might as well move on to the next town. Except to see a lot of that.

Similarly, if a developer does wade in the whole way and put his or her, or their money where there mouth is, there is no guarantee that a similar competing development may not appear on the market at the same time, from NAMA, which might trade at more competitive prices, offer better deals, more space per euro or have better design. What will this lead to? Will this lead to traditional players in the property market only becoming involved in lower quality projects, with a fast turn around on investment made. I don’t know to be honest. The biggest worry with NAMA in the market, is the scale of it. A developer who is trying to work ‘terms’ with NAMA, might be more motivated than anyone else in the marketplace to pursue tenants, get it right and break even. There might be different motivations in other words, to existing players who are trying to operate independently of NAMA.

Then you can imagine funny situations, in which a developer is working with ARC and NAMA and maybe a British asset recovery vehicle also – doing different projects with different ajencies – from a portfolio, which once belonged to the same developer. In the past, that portfolio would have been subjected to exactly the same treatment by that one developer. Now the developer may be forced to alter his or her approaches according to the asset recovery vehicle they are working with. This can only be a good thing in my opinion, because it will force the developer to try different angles. In the past they didn’t try different angles, they only tried the same angle in repetition. I would argue, it was that lack of creative thinking and innovation which buried a lot of them in the first place. The only time, in the past, I can remember that developers were shoved around and forced to do things (slightly) different was:

A) When they dealt with local authorities in different parts of the country.

B) When they dealt with a large commercial tenant who had their own ideas about how to design and build.

Of the two, I would say the second, posed the greatest challenge to individual developers. In the second case, the large commercial, or semi-state or state tenant may impose higher requirements in terms of pinning down legal agreements and so forth.

The large commercial tenants are not fools when it comes to design and building of their facilities. It is like RyanAir, their wealth depends on their knowing how to manage and operate their facilities efficiently. They often talk a language which developers find surprisingly sophisticated.

It all depends going forward, whether NAMA, ARC or any other asset recovery vehicles are going to operate like large commercial clients or not. In the past, the banking institutions would have put some conditions on how building development happened. In the future, I wonder how much the asset management vehicle will operate like a large commercial client, or as a bank.

Minister Brian Lenehan should consider his options here carefully I think. At some stage, it is my opinion, following the radical overhaul and down-sizing of the no. of local planning authorities in this country – which now as 88 no. authorities – those authorities will play a much greater role. Not only in the initial design but also in the longer term management of infrastructure and facilities associated to development.

That interface has to work, if one wishes to aim for a higher quality, carbon neutral society in Ireland in the future. Developers in Ireland, of the past tradition, were very keen the this interface didn’t work properly at all. That local planning authorities were in effect, bungling idiots who couldn’t catch a cold. In a large number of cases, that may in fact have been true.

I listened with interest to the Spirit of Ireland lecture the other evening. The presenter that evening noted that County Clare had jumped far ahead of the other counties, in developing its own energy roadmap or strategy for the future. This notion of sustainability and energy efficiency should not be filtered down through the old style planning process. Rather it needs to be updated and work on a permit system – whereby the local authority have designated targets to achieve in energy and sustainability. There would be a nation wide amalgamation of these county-level energy roadmaps, which would ensure that investment in energy independence would be organised properly.

If their negotiations with GPs and medical consultants is anything to go by then the capacity of the Irish state to overpay professionals is, to use Joe Durlan’s phrase, “boundless”.

Echoing someone else:

Brian Lucey, as well as being an IMDO generally is an outspoken trenchant critic of NAMA with some strange views on barristers, is irrationally censorious, a silly supporter of the Lisbon Treaty and doesn’t agree with Karl Deeter. DO NOT ENGAGE 🙂

@Brian Lucey

I think it’s time you shared with us the reasons for your antagonism to lawyers. I am getting a very definite impression from your noxious exhalations here on the legal services industry that you doth protest too much on this subject.

Have you asked any actual lawyers those questions ?

And please don’t assume that I am going to defend every silly anachronism that you may want to drag out.

Lets be honest about it, when planning for a shopping centre, I usually see maps the scale of several counties shown in the business plan. Becuase the draw of shoppers may be from several counties. This means that any developer contemplating building anything in retail, has to guess to within a catchment area of several counties. How can he or she know that a NAMA scheme isn’t well underway in that said area? He or she has no way of knowing, even, that NAMA might have several retail properties in the pipeline in the said area.

The same to an extent with offices and with residential or mixed use. At least in the past, the big players, the Treasury Holdings, the Dunloe Ewarts, the McNamaras and so forth, were relatively ‘marked’ men or women. You could at least see them coming from a distance, despite their best attempts to work covertly.

On the other end of the scale, the local authorities in Dublin have been able to identify areas of Dublin city which are relatively un-served by high quality retail and supermarket facilities. Believe it or not, there are still areas of Dublin city, where for one reason or another, no developer even bothered to enter into those markets to deliver modern facilities to willing consumers.

So it shows you, that even if a concentrated urban environment such as Dublin city, opportunities can be missed by developers. What Chartered Land in particular does is to look at the landscape and identify areas which are ripe for re-development. Swords, Dundrum etc. In fairness to Chartered Land, these new centres do appear to create some focal point around which economic activity seems to arrange itself. It does appear that may urban centres in Ireland, need to become poly-centric in nature, as opposed to mono-centric as they were in the past.

I also like what Chartered Land has done with the Illac centre on Henry Street. There was no messing about it, the job got done very quickly, wasn’t any major change but was a quantum leap in improvement of the retail ‘experience’ for the area. Thumbs up.

It would be great if NAMA, ARC etc could encourage a similar degree of quality of other players in property development. But I wonder, if it is down to the individual developer and their skill level, more than anything else.

As much and all as I value what Chartered Land do, I could also make several suggestions and input into their design concepts. Hopefully, a lot of the best know-how in the trade will have an opportunity to mix together in the coming years ahead. That would be welcome.

@Brian Flanagan…. choice between a hundred or so cronies as advisors over the next 10 years (am assuming they will work 50% on NAMA at 1k/day, so really 50 full time) or hiring 3000 ordinary accountants, architects, solicitors etc off the dole on a low but good wage for a recession….(assuming 40k/year to cover contract wages.)

Better hire the cronies, having a few thousand people pouring over the books might spot something…..

I think that John McManus’s article should be put in the context of points raised earlier by John Fitzgearld, ERSI.

http://www.tribune.ie/business/article/2009/oct/04/john-fitzgerald-shock-therapy-needed-sooner-rather/

Another example,

Colm McCarthy’s Irish Times article made a point about NAMA not falling foul to ‘mission creep’, too many functions to perform.

The same point was made by Tom Parlon, director of CIF, on national radio and John Gormley, Green Party minister for the environment took exception to the point later on the same radio station, because it was made by the CIF director.

I suppose, the great thing about economists commentary, it is relatively neutral commentary. It doesn’t suffer from the enormous difficulty of a director of the CIF standing up and trying to say something on national radio.

It seems a lot of the time, that who makes the point, has a lot of impact on how the point is received by various interests.

Getting back again to John Fitzgearld,

John Fitzgearld illustrated by the point, that the construction industry had to over priced wages in order to pull human resources away from other sectors of the economy. The perennial danger in Ireland is, the construction projects demand more labour than our economy can provide at any given time.

Furthermore, the construction industry is so capital intensive compared to other sectors of the economy, that labour cost as a percentage of total costs is of little or no relevance to property developers. If your project worth millions is going to suffer because of a shortage of labour, then the investor is sure going to bid as high as needs be to get the labour they require.

You compare that to the public service. There is never any loans over hanging civil servant offices – or is there? Rental etc. But in general terms, schools, hospitals etc are paid for up front out of the public purse. After that, labour in the form of teachers, doctors, nurses and so on, are by far the biggest input of capital.

Look at retail. It appears the makeup is totally different there. The rents on the retail units appear very high. The staffing costs of the retail units are variable. You can fire the staff and close the retail unit if the economy tanks. You can’t do that with hospitals or schools.

But of all the sectors in the economy, construction appears to be the least well behaved. We may complain today about the difficulties of reducing labour costs in the pubic service. But the main problem always with construction industry, is that it overpays for labour, because labour is insignificant compared to other inputs of capital – and this overpricing of labour in construction, poisons and over heats all other sectors of the Irish economy.

I had read on the SFKL blog the following piece about Contract enforcement time as reported by the World Bank.

it appears that NAMA of no there is an issue that needs resolving here. The comment begins:

Firstly I’d like to focus on Contract enforcement times. While its easy to draft a contract that envisages all risks its often quite difficult enforcing the remedies. The greater the cost associated with enforcing those remedies provided for in a Contract the less effective that contract is on a day to day basis.
With that in mind its useful to review how the south of this Island ranks in terms of Contract enforcement globally. This is a critical point in developing a pro-business environment. How can we encourage SME’s if we cannot guarantee timely and cost effective enforcement of a contract. This point will resonate, I believe, with every business person who wrote of a debt because it was not worth pursuing or who accepted ad/hoc terms outside the agreed contract because they had no recourse.

So how does the southern part of Ireland rank according to the World Bank in Contract Enforcement.
Well its actually only 39th in the world, sandwiched between the tiger economies of Cape Verde (40) and just above Bhutan and Mongolia(38). Yes apparently its more effective to go through the courts in Mongolia than in sth Ireland Now that’s something to consider.

If we look at the top countries then we have Hong Kong, Luxembourg, Iceland, Latvia, Finland, US, Norway, Korea, Germany, and New Zealand (11). I include NZ as being more typical of the common law used in sth Ireland. Other notable common lay countries are Britain, including the north 24th‘’ and Australia – 20th. This is worth dwelling on. While Brian Lenihan may foolishly talk about lost VAT revenue to a company operating in Newry he typically makes no mention on why the south is 15 places behind the north when it comes to ease of enforcing a contract. Is this good enough. I Partisanly note that little FF does is good enough

Just to lay the ground work note that this deals with the ease or difficulty of enforcing commercial contracts by examining the evolution of a payment dispute and tracking the time, cost, and number of procedures involved from the moment a plaintiff files the lawsuit until actual payment. Claim assumed to be equivalent to 200% of income per capita. Big but not huge. Probably typical actually for most SME´s.
Briefly lets examine their findings. Looking firstly at duration until enforcement and procedures required for the best ranked in the world and some other interesting comparisons for sth Ireland.

State |Procedures |Filing & Service |Trial |Enforcement | Total Days
HongKong | 24 | 5 days |76 days |130 days | 211 days
Luxembourg 26 | 21 days |240 days|60 days |321 days
Germany |30 | 29 days |310 days|55 days |394 days
GB&n.Irl. | 30 | 35 days |313 days|56 days |404 days
sth Ireland |20 | 60 days |365 days|90 days |515 days

These figures are not acceptable are they. How can it be acceptable for a company to wait up to 515 days. Is this judicial system geared to aiding or hindering business?

And then cost of enforcement which is related to time:
Costs stated as a % of total claim value.

State | Total-Cost | Attorney | Court | Enforcement
Hong Kong |14.5% | 12.7% | 1.5% | 03%
Luxembourg| 8.8% | 6% |1.9% |0.87%
Germany |14.4% |8.78% | 3.2% |2.4%
GB&nIrl |23.4% |19.6% |2.6% |1.22%
Sth Ireland |26.9% |18.8% |2.3% |5.8%

I feel little need to expand on these figures. Its clear that we are not top of the class. Business does not care what excuses sth Ireland has. Excuses don’t cut it do they. It would seem apparent that there is a need for reform in our legal system if we are to be a entrepreneurial country.

Conclusion:
If sth Ireland gears itself for a strategy of recovery via exports based on a strong competitive basis then its going to have to do more than relentlessly focus on the minimum wage. In Ireland we often focus on straw-men at the expense of the real problems. There are indications that we are not providing a pro-business environment and also worryingly evidence that we are needlessly hindering small businesses by having an inefficient contract enforcement record. Is that acceptable when companies are struggling to recover costs. I have tried to highlight that the points made in the Sinn Fein Jobs Retention and Creation strategy highlight that there are definite steps that can be taken to improve the operating environment facing our business sector. These are just some thoughts on those points.

http://sinnfeinkeepleft.blogspot.com/2009/04/blowing-budget.html

Outsource the jobs to Chinese or Latvian professionals. I’m with Dean Baker, competitive costs will improve significantly if the jobs of the professional folks — lawyers, doctors, professors, journalists — were in the same direct competition from their foreign counterparts as construction, manufacturing, and textile employees.

@ Marise

All very fine having Latvian Doctors who asks you to stick out your Thumb and he means your Tongue and he diagnoses you as having a curious piece of metal in your system (ring) !!!!!!!

@Brian Lucey

I would be careful about criticising professionals particularly Lawyers as there is a story doing the rounds about people in glasshouses throwing stones. I heard that UK Profs earn around half what the Irish ones get paid and the 16 hours teaching a week here might be a doddle. Did Colm make some comments on the University teachers contracts in his report???

@TRP
indeed : check what I said re wages this time last year. Not sure what you mean re colm and contracts? There are no artificial barriers to entry to being an academic, afaik.
@Fergus
whats an IMDO? Anyhow., yes , I have discussed this issue. But why are you surprised that I would call for increased competition via lowered barriers to entry? Can you defend these without special interest pleading?

@brian

The IMDO definition is above.

I don’t have any objection to increased competition in the legal services market, if such is possible. The Competition Authority has done some work, and stimulated work in response, which has illuminated much but which has not demonstrated that supply of more lawyers is what is required. Given the rates of unemployment and under-employment among lawyers, I am curious as to why it should be taken as self-evident that there is a an effective “choke-point” at all.

There is much glib comment about the high level of lawyers’ fees, and it is justified at least some of the time. I contend that it is due to market imperfections, not the usual scapegoats of restrictive practices.

But most services markets are imperfect: there are plenty of plumbers trading in my vicinity but I give my business to the one who will turn up. I don’t even know how his prices compare. So it is, to some extent, with the way people choose their solicitor and much more so with the way solicitors choose counsel.

@Marise
Professorial posts are already globally competed for. The last chair committee I sat on in TCD we interviewed a US based originally indian candidate, an irish candidate, a dutch one and a german/swede. We didnt actually appoint but went back to the well again.

Nama is an institution that will be created from scratch by the state for an impossible task with an indefinite life. Why does this cause less fear than temporary nationalisation of the banks? We could legislate for an independent board of unimpeachable integrity and huge international and business experience to own our shareholdings and to appoint directors of similar qualifications to the banks. It would be an opportunity for a revolution in Irish banking culture, particularly necessary for the Ancien Regime in AIB. Remember, a Nama is not just for Christmas, it’s for life.

Good point Eamon.

I was pondering some of our behaviours as a nation in relation to property over the past decade. I was wondering what kind of a road map we are facing into now. I am concerned that money will be mis-spent and wasted on construction of all kinds. To break it down to simplistic examples, I penned the following piece, which voices my concerns.

Professionals have been very suspect in one way in Ireland – there was very little communication between individual professions responsible for the built environment. That includes solicitors and auctioneers on one end of the spectrum. With quantity surveyors and engineers, contractors at the other. The only way I know for this broader conversation to take place is where you have all professionals working for one organisation at the same time with a common purpose.

I found that condition, with everyone working for a single company at Zoe developments. The potential of such an arrangement has great scope. I do hope that with NAMA related projects, we can bring a similar kind of approach to bear. It is really important that we get these construction professionals talking to one another. I believe, economists will have input into the conversation also. But in the past, everyone did there own thing, kind of.

Breaking it down to the most basic form possible.

Take the example of someone in 2006 putting their house on the market and employing the services of an auctioneer. Particularly, if the houses was of the older variety, you would suddenly witness all kinds of interior fit-out trades going into the house. Walls would be ripped apart and re-plastered, new floors would be laid and new appliances installed. In some instances even new windows might go in, or doors be replaced.

It was all aimed at improving the ‘wow’ factor of the property in the hopes of a fast sale. The auctioneer advisor might argue to the home owner, this work will cost some money but will add considerably more to the selling price. Heck, why not install a new kitchen! You saw a lot of TV documentaries telling how you can achieve the ‘wow’ factor. Basically, it drove people all mad. If only that ‘madness’ could have been focussed at energy efficiency measures, instead of skin-deep upgrades, we would be right. Our housing stock would now pay us back handsomely.

In many instances, I am sure this ‘make over’ strategy paid off and the efforts to tidy up the appearance of the dwelling did improve its chances of a sale. However, in many cases first time buyers did nothing more than pay €50k extra for a make over. That is down to the auctioneering profession who never discussed things with other members of the construction world. In fairness, in some instances the large developers had a more constructive relationship. Also, the auctioneers were working to get the best price possible for the property seller.

In 2009 we are suddenly looking at a situation where we want to re-enter the 1.0 million + dwellings in Ireland again, to rip them apart and retrofit them for a completely different reason. For energy independence. Has anyone noticed how daft that is?

The auctioneering professional was dispensing advice, and the mass population took whatever advice they offered as gospel. Most of the spare cash available for energy retrofits has already been spent. Bord Gais is saying we need to spent €12,000.00 on each home in the country in the coming years. You will pay that money over time on your bill, which will be reduced in terms of energy consumption. That is how Bord Gais and other Esco’s hope to operate. But I still find it astonishing, given that Ireland has spent so much already on make overs.

Architects whose sales pitch in the recent past, was pay me consultants fees, and I will add to the selling price of your property. Their sales pitch today, is give me fees and I will save you money on fuel costs! I just find it funny and everyone plays along.

Knowing more than a thing or two about construction myself – I would argue the energy retrofit work that will be done in this decade, will have to be ripped out a third time in the next wave, when fuel prices really increase. Because the sequence of today’s energy retrofit approach is all wrong. From what I can see, the energy retrofits are doing things back to front. But I don’t have the space to go into that here.

We have to find a way to get rid of this panic-mode in the construction industry, where certain houses will undergo a couple of different retrofits over a short space of time. The complete cost is going to be much more, than if people waited and found the right approach from day one. We have to be more careful. We need to obtain value for money.

This is probably too technical a document, and too focussed on energy conservation in dwellings. But it was a bona fide consultation report commissioned by the dept of environment, to bring Ireland into alignment with other EU countries in terms of efforts with buildings to bring them to a common EU standard.

http://www.environ.ie/en/Publications/DevelopmentandHousing/BuildingStandards/FileDownLoad,15660,en.pdf

It demonstrates clearly, the sheer level of detail one has to go into, to set regulations and standards, by which Ireland can be compared with the South of France, or Germany in terms of its building standards.

@Kevin O’Rourke
Not many people know about a previous controversial scheme supported by Brian Lenihan, when he was mayor of the summer resort of Amity Island in the US in the mid-seventies, during a period of shark attacks. I am afraid that AMA is viewed today to be the wrong policy response to shark attacks and a disastrous failure.
It is the fourth comment on Mr Graham Stull’s website.

http://grahamstull.com/index.php?blog=1&title=the-payer-family-a-farce-in-one-act&disp=single&more=1&c=1&tb=1&pb=1#c72

@Eamonn76

“It is the fourth comment on Mr Graham Stull’s website.”

Surely, not another one!

Am I the only person in Ireland without his own website? It seems that every Tom, Dick and Harry wishing to propound the view that we face economic Armageddon has now set up his own website to broadcast the fact. If they included ‘doom’ websites in GDP, the economy would be growing by 20% this year.

Alas, I predict that the vast majority will disappear once the economic upturn is under way. When that happens, most of the Jeremiahs will lose the will to post and, in a few cases, the will to live. I hope Irisheconomy.ie survives the upturn though. But, I have my doubts.

Going back to the beginning of this thread – NAMA and competitiveness – and studying some of the ramblings of my own above, I have reached quite a simple conclusion.

I believe the question is misleading. It is not so much a question of how competitive the individual professions become in Ireland. But moreso, a question of how well they all communicate and think together, as opposed to separately, to become more productive as a group rather than as individual professions.

I hope some of my lengthy examples discusses above, do underline that point of view.

You look at the clip here from RTE Nine News,

http://www.rte.ie/news/2009/1025/9news.html

“Stockholm singled out for environmental policies”.

We are no longer an island of Ireland, but part of the EU. Every piece of development we do in Ireland from now on, will be benchmarked against the best achievement elsewhere in the EU region.

The point being, the guys at Stockholm cannot do what they do, because they are better or more competitive as individual professions. Heck, they may even be less dynamic or competitive as individual professions than in Ireland.

But what the Swedes and other areas of Europe have, is an ability to join together to solve their problems, across all disciplines. I see that as a problem in Ireland. We have become too defensive in our disciplines.

The conference linked by Liam Delaney in another thread, seems like a positive opportunity for the cross-fertilisation of ideas. Psychology and Economics. Traditionally, the person who works across disciplinary borders is penalised heavily in terms of income and reputation. Hence, why people stick rigidly to their own positions. It is purely to do with earnings potential.

Even at university, if you stray too far away from your own department, you are automatically viewed as being un-focussed and perhaps even a bit flaky.

When I was learning my law, Kings Inns made it clear that the law was all about delays. With competent counsel rights could be deferred for a long time. Peter Kelly clearly does not favour delays!

Mongolia needs more lawyers it seems. I will remind us all that we are of one blood and or upbringing and that disunity is capable of being a weakness. The point about the green jersey is not that it is “mala per se”, but that the wrong people have been deciding whom to invite into the tent, sorry jersey. As a result, they have become an embarrassment.

I note the new US book on De Valera. Entirely plausible, as the man with the English gold has many tricks. And it is cheaper to go to the head. So Charlie is my pick for Steak Knife. Note how the revolvers never actually reached their destination! And that involvement in Irish affairs is a sport for certain types. Ensuring that Ireland is weak is simply good business for our neighbours and those who have invested so heavily in them. They are also behind the pressure for Nama. Perhaps with the decline of popery this will lessen, but I doubt it. This Nama issue is too dangerous to our nation. But Iceland has had to settle with the money changers. We will not get away too cheaply even if Nama does not pass into law!

John McManus said:

“The story is no doubt apocryphal, but gets across the point that Nama is built around an assumption that the use of external professional advice is part of the best solution to the biggest single challenge faced by the State in its history. Looking back over the last five years, it’s hard to justify any such optimism.”

I will try and tackle that.

I think the John McManus suggestion of the baggage handler being picked at random and asked to fly on the airplane is useful. So how do we implement that in Ireland with property?

The answer I suppose, is to create a property development vehicle which puts up one single fee sum for the entire team, and then requests that the ‘team’ become employees of that one vehicle. In other words, how the divide up the stated sum is up to themselves. What is also up to the team, is the figure out how the various solutions proposed by each discipline need to fit together.

When I worked at Zoe developments, we used to do that. We were criticised externally though, by each of the individual professions for having developed solutions, which were less than adequate in the eyes of each of the individual professions. Sure, we could have produced a better solution if you looked at it from an individual discipline perspective.

But what those individual disciplines never seemed to understand, was that we started with a business plan, a stated amount of investment with a stated expectation of return. It was up to all individuals involved in the project to fit things together, to make the plan work somehow. Of course, it involves compromise. But in total I think you get a more robust product out of it.

In our current system, the game basically is: Each individual discipline competes to enlarge their share as much as possible. They aren’t really concerned if the overall project sum baloons upwards and gets larger. They only justify their own corner and say: The market rate for architects is a million euro per project, or whatever. What happens is the auctioneer expects the same, and everyone else asks for theirs too.

It will be interesting to see if NAMA will challenge this, and try to make things fits into a pre-designated sum or target. It is a different way to motivate people. The biggest benefit of the system I suggest, is not alone that it would save money. The far greater benefit is that it forces the different disciplines to coordinate more and brings them closer. Less problems occur at the interfaces. Very quickly people begin to ‘back down’ from their individual positions and realize that their requirements might cause conflicts somewhere else in the system.

With the old team of consultants approach used in construction, this problem was never fixed.

@JohnTheOptimist
I enjoy your Pangloss like optimism, “all is for the best in the best of all possible worlds”. I don’t see it as the basis for sound public policy though, and I am sure Voltaire would have supported my opposition to Nama. If, however, you set up your own website, the quote above would make an excellent name. There will be an economic upturn John, but Nama will delay it and slow it down. It will never make it a sane proposal.

@BL

“But why are you surprised that I would call for increased competition via lowered barriers to entry? Can you defend these without special interest pleading?”

Appartently somewhere between 30 -50% of each cohort of barristers will have left the bar within 5 years being called. The average wage of a ‘surviving’ barrister after 10 years is circa 70,000.

Its hard to see how increasing the numbers of people called to the bar, without other structural changes, will do anything other than increase the number of people falling away.

Changing the structures probably implies getting rid of the independant referral bar in order to give junior barristers a wage. There will be costs as well as benefits to doing that.

In general if you win a case the other guy pays your fees – so if you think youre going to win its probably worth getting a highly rated barrister. Its very difficult for a barrister to price himself in to the market in these circumstances. It is a demand as well as a supply issue

Christy,

I would have to think about that one a bit more, but the structural change is only way you can do this. I will try and expand on that if I may be so bold.

The big fault with my idea above, with all of the different guys working in the one company, coming from different disciplines, that system will accomodate a huge amount of slack, in terms of practitioners who don’t quite come up to the standard in a more competitive, specialist environment. It is not a system designed to weed out the best from the mediocre. But it could be a system designed to make the mediocre a little bit better.

The funny thing is, that does seem to matter much in the final shake up. Because we have a lot of very skilled professionals out there, who only use their special skills 10% of the time. The rest, they might be exercising skills that are no more than administrative and very ordinary. That is my experience anyhow. Not everyone has to be a world beater for the team to achieve its purpose.

With consultants and specialists they tend to be staffed with people with ‘big reputations’. By definition, if you are to source clients willing to pay a consultant/specialist, they must have a big reputation in order to command a fee and stay viable.

The situation in a profession is, if you aren’t prepared to compete at a certain standard, you are shoved out, or marginalised and scorned at. I know a guy personally, who had advanced his knowledge of energy conservation to a high degree. But in many respects, he was an average architect. He was fired by his boss after 20 years of service this year, because he wasn’t ‘flashy’ enough to attract in the big clients.

In the professions you have people who have enough to offer for much of the work there is to be done. But who are not ‘flashy’ enough to attract the big deals. They get shoved out of the profession, little by little. This results in a shortage of architects or specialists. That is fine during the recession times, but when anything starts moving again in the economy, we end up importing massive amounts of help into our professions. We don’t have enough professionals all of a sudden, to handle the workload.

It is only a portion of the work, which actually demands the high level of skills. I would compare many professional consultants to machines that operate at very low efficiency. They are really only flexing their muscles 10-20% of the time, and the remainder is just throwing shapes, to pretend their high level skills are required, when in fact, it is not.

I suppose the culture in banking got a bit like this. This claim that Ireland needed to pay twice or three times the going rate for bankers every where else in the world. Because there was something about Ireland, which demanded such a high degree of skill, which wasn’t needed anywhere else.

At the company I worked for, we threw all of the disciplines in together. One discipline in the team may not have been up to best standards. But it was surprising how often ‘the project’ could drive on in spite of that, and other disciplines compensated in some way for the mediocrity of a certain member.

I entered into a project myself as the ‘mediocre’ member of the team, and was carried some of the way by the other team members. But after a lot of hard work, I found myself getting up to speed. That is an opportunity I would never have got from a traditional consultant, because I was not ‘flashy’ enough to begin with. The truth is, that flashy stuff has a limited depth anyhow, and a short shelf life. The real lessons, are learned from others in teams, which are comprised of people from other disciplines entirely. That is my belief.

My plan is to take the ‘average’ stuff which is not is high demand, (like the 29 year old bonds as opposed to the 30 year old, new issue bonds) mix it up in a team formed of diverse disciplines. Work on the aspect that drags down projects most of all – poor team work – rather than individual brilliance.

The trouble with Ireland is we tried to create teams made of ‘best of breed’ in nearly every aspect. Our new found wealth during the Celtic Tiger was not kind to us there. We paid top dollar for the best consultants in each discipline and the team work aspect was under-valued.

The new Mater Hospital project I saw recently in the newspaper, stinks to me, of the problems when you throw a whole load of top level consultants at a problem – each of who, bring along their own baggage and sense of self importance.

“In the professions you have people who have enough to offer for much of the work there is to be done. But who are not ‘flashy’ enough to attract the big deals. They get shoved out of the profession, little by little. This results in a shortage of architects or specialists. That is fine during the recession times, but when anything starts moving again in the economy, we end up importing massive amounts of help into our professions. We don’t have enough professionals all of a sudden, to handle the workload.”

I would agree with Brian Lucey, in the sense, that professionals are aware of this cycle in Ireland of extreme downturns followed by extreme upturns.

In other words, when the shortages occur in the early stages of a boom, and before the country has a chance to import the services of professionals, there is a period during which inflation for the price of professional services spirals.

The fact is that professionals are aware of that cycle, and do their very best to game the system, thin down the professional population as it were, in order to benefit from the sharp price inflation at the start of a boom period. You see it all over the country. There was a very deliberate policy during the boom times to make the business model as un-sustainable as possible, make no plans for the future, in order to implement this huge sheeding of professional workforce, with the first sight of a downturn.

No manufacturing company that I know could afford to operate like this. It needs to make plans in advance for its next product, or its next market. There are no such attempts made by the professionals in Ireland, in my view.

Legal fees will be going up due to
– the elimination of the undertakings system as insurers are not willing to cover it.
– increases in insurance premiums driving many out of business and acting as a barrier to entry preventing others from starting up.
– the movement of redundant solicitors away from law reducing capacity and competition.
– increased workload and liabilities for solicitors under the new e-stamping regime leading to further staff costs, liabilities and increases in insurance (which will ultimately be passed on to consumers).
– the increase of time costing within the legal profession coupled with a trend towards across the board monthly billing and invoicing. This will impact people with smaller value issues.
– increased regulation in industry and employment leading to an increased requirement for legal expertise.

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