Palms, consultant at odds over efficiency report

How much value does the Palms find in value pricing? Very little, in the view of an efficiency expert who worked on site for much of this year.

According to a lawsuit filed in U.S. District Court last month, the off-Strip resort retained CLM Partners of San Francisco early this year to try to wring out cost savings as its financial results stumbled. When former controlling owner George Maloof balked at the standard price of $4,000 per day per consultant, they settled on a discount coupled with a bonus based on 15 percent of the first-year savings, an arrangement known in the industry as value pricing.

CLM officials contend they submitted a final invoice of
$1.4 million but have been paid only $241,000, covering the agreed-upon $2,300-a-day base fee for as many as four consultants.

But CLM has resorted to an inefficient court action, naming three entities related to the Palms and current Palms president Joseph Magliarditi as defendants, to try to collect its claimed
$1.1 million bonus and other charges.

According to court papers, CLM consultants started combing through operations, coming up with ideas that ranged from outsourcing pool cleaning to running the numbers on a plan to cut energy consumption. As a result, CLM claimed it identified "an astounding $6.97 million" in first-year savings.

A Palms spokesman declined to comment, as did a CLM official in San Francisco.

CLM said the atmosphere at the Palms changed on June 27 when Magliarditi became president after the Palms ownership structure changed. In the lawsuit, CLM contends that he told the consultants that part of his mandate was to cut costs and that "the new owners expected him to be doing the work that CLM had already done."

Though unfamiliar with the case, John Furth, president of the Association of Management Consulting Firms in New York, said these sorts of disagreements have caused a split within the sector over what amounts to charging commissions.

"It can be very complicated way of billing," he said, because of potential disagreements over what counts as a savings. "Some firms shy away from it while others embrace it wholeheartedly."

CLM, which promises on its website to "conduct our work in close conjunction with our clients," said it tried to defuse the issue up front by specifying that it could earn the bonus on any savings it found, whether or not the Palms actually took the advice.

On a broader scope, Paul Fiorelli, co-director of the Cintas Institute for Business Ethics at Xavier University in Cincinnati, does not view a commission system as an invitation to run up the bill with measures such as layoffs.

"If somebody is paying me a flat $4,000 a day, I'm going to deliver some pretty dramatic recommendations," he said. "At that level, I don't see much difference between being paid a percentage versus a daily rate."

Contact reporter Tim O'Reiley at
toreiley@reviewjournal.com or 702-387-5290.