Negotiating adviser fees.

• Position: Accounting firms

The following exchange is adapted from a thread of comments on TEI On-Line. For information on how to sign up for TEI's free interactive Internet site, please click on http://www.taxnews.com/tnn_private/.

Question: A member who wishes to remain anonymous asked that I post the following comment/question: I am currently evaluating a state tax restructuring for my Company. I am completely shocked at the outrageous 7-figure fee proposals that we have received from several Big 5 accounting firms. Are other companies paying this level of fees for these types of projects? Our company does not have a very complex structure, so it just doesn't seem to make sense to me that the fees should be so high.

Respondent #1: We went through a similar restructuring two years ago. We paid in the mid six figures and have realized savings many times in excess of the payment. I think a seven-figure fee proposal is absurd.

Respondent #2: Is this a flat fee or proposed fee with hourly billing? How many hours could this project entail? Couldn't a law firm complete this restructure with the help of the staff? Is this another "value billing" argument? Must we go to the Dali Lama for the answers?

Respondent # 3: We have entered into fee arrangements which essentially put the Big 5 firm at risk, but allow them to "share" in the actual benefit received. In some cases, we've included a cap (and/or a floor) on the fee. Be careful when you talk about benefits: some firms try to include non-cash benefits in calculating fees -- e.g., one firm calculated both cash benefits and also FAS109 financial statement benefits (deferred tax restatement, no current sayings) in its proposal. Just a thought -- do CFO's agonize over investment bankers' fees the way we tax folk do over tax consultant fees.

Respondent # 2: The CFOs that I have worked with seem to accept the investment banker fees as simply a cost of doing business such as utilities, salaries, etc. As to my last comment, my Friday and fee conversations with a Big 5 firm got the best of me. I get tired of hearing about value billing when I believe that such value is inherent in the stated rate of $300 to $450 per hour. My other complaint is that I have explained to such Big 5 firm that companies have a budget that they can or will spend on projects or tasks. I need to direct the firm on where I want those dollars spent. Instead, I turn around with a bill for things that were not authorized by anyone here at our company.

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